2021 JULY
MISERY ON THE
UK HIGH STREET
By : Andrew Sia
Introduction
On November 30, Arcadia Group—owner of Topshop/Topman, Miss Selfridge, Dorothy Perkins, Evans, Burton, Wallis and Outfit went into administration, which is the same as entering into Chapter 11 here in the US. The following day, Debenhams—the beleaguered department store chain, went into administration for the second time in 12 months.
The two announcements put the fashion retail industry in misery, not only Arcadia’s 13,000 retail staff and Debenhams’ 12,000 retail staff, but also the future of the high street at large. Considering the number of stores—Arcadia Group’s 444 UK sites and 22 overseas; Debenhams’ 124 remaining stores, with retail facades all boarded up, the store closures will leave large gaps in the high street. The landlords are struggling to fill amid the enduring coronavirus pandemic and the Covid-19 crisis exacerbated.
It is said that since the beginning of this pandemic, more than 17,565 stores closed permanently in 2020. Most of this have been triggered by the lockdown, and in the UK for its third time. But the retailers would have themselves to blame for the result of too many years of bad management and poor merchandising. Business has been replaced by private-label business and became outdated and because of the lack of excitement, business won’t continue as it is irrelevant. The Covid-19 is the last nail on the coffin.
The growth of the business in e-commerce is also an inevitable switch, not that the normal customers would want to use this route but during the lockdown it seemed to be the only solution. Even the switch over to purchase online doesn’t seem to benefit the fashion industry. You can blame the need for clothing is not there because of the lockdown and all the precaution that we would have to take.
Lockdown is only like the release of the floodgate, online accelerated and swooped in and gobbled high street brands that failed to adapt, and showed no mercy with those bricks-and-mortar legacies. It brought along the watershed moment.
Covid-19 just accelerated the inevitable, but what has been taken place really need to change.
The Case of Debenhams
Debenhams is a 208-year-old department store chain and it is a household name. It had the No. 1 position in beauty in the UK and No. 2 in skincare.
Debenhams had 6 million beauty shoppers and 1.4 million ‘Beauty Club” members and 30-35% of its business was in beauty. It was also good in housewares
Beauty is a fast-growing and least-penetrated online business. Debenhams.com net revenue of £400 million in its latest fiscal year of August 31, 2020. The site was getting 300 million UK website visits a year, making it a top 10 UK retail website by traffic. It was the crown jewel for Debenhams.
Debenhams’ 124 remaining stores were finally boarded up and Boohoo Group only bought the Debenhams brand and website for £55 million but not the physical 124 stores and the 12,000 staff which resulted being redundant.
Another piece of business, Debenhams’ financial services was not considered.
Boohoo Group CEO John Lyttle, mentioned the high street brand awareness of Debenhams, with its beauty and fashion, and they are going to be further converted into digital form and Boohoo can benefit from its beauty and homeware legacy.
Towns that took Debenhams as anchor will take some time to repurpose and to resolve. The sheer size of Debenhams stores will take many small businesses to fill in the void and it is becoming very complicate. Debenhams stock will need to be liquidated, it is another situation like Brooks Brothers that would likely to happen, and it would take time to see it being winding down.
Boohoo is known for fast fashion online and responds to fashion in lighting speed at low price but its business matching with Debenham is going to be questionable. This fast fashion e-retailing group owns MissPap, Nasty Gal, PrettyLittleThing, Boohoo, Oasis, Warehouse, Karen Millen and Coast.
Those suppliers no longer can have the business generated by the business volume as created by the number of doors and can’t sustain and benefit from the production cost based on the volume.
The hugh retail job losses and create a big hole in the high street is inevitable.
A little information on Boohoo. It is a public listed company in the UK and its sales in 2019 was £856.9 million. It has its own brand plus all those brands that it acquired from Debenhams and Arcadia Group. It is an online fashion retailer. Its business is targeting at customers of 16-30 years old.
Lately, the company came under the critic for not paying the workers their national minimum wage in factories in Leicester. They source 75-80% of the clothing produced in Leicester and came under a strong critic lately. But their claim was that they were unaware of the situation.
The Case of Acadia Group
After Next dropped out of the Arcadia bidding race, Asos and the other interested groups, Chinese e-commerce Shein, Frasers Group and Authentic Brands Group, the US owner of Forever 21, who was in a joint bid with JD Sports Fashion.
Asos was in exclusive talks with Arcadia Group’s administrator to acquire Topshop/Topman, Miss Selfridge and activewear brand HIIT. Asos may retain Topshop’s flagship store on London’s Oxford Street to bolster Asos’s brand.
Boohoo Group was in exclusive talk to acquire Arcadia’s Dorothy Perkins, Wallis and Burton brands.
We have seen another legendary UK clothing magnate went down. But we know this one as it was brutally mistreated by no other, Philip Green, whom I never have any good impression leave alone any good words for him.
A little information about ASOS, which is a British online fashion and cosmetic retailer founded in 2000 in London and primarily aiming at the young adults. It sells 850 brands around the world. ASOA means AsSeenOnScreen. The company has finally been successful in acquiring Topshop/Topman, Miss Selfridge and HITT. The deal was finalized on February 1 and it acquired £300 million stocks and transferred 300 Arcadia staff to its company. But those associated stores would be closed.
Its total revenue in 2020 was £3.17 billion in 2020.
The Impact
Almost all the bidders are only interested in names they are buying, the new owners plan to take them online only. They want the brands but not their operations. The brands used to operate their own retail stores and also manage concessions. The new owners would not be interested. That made their presence in the high street locations but also in shopping centers in different towns and they are going to cause a lot of problems.
For towns in south-east and north-west of England you can find Debenhams and Acadia who had their strong presence. The closures are affecting the neighborhood tremendously. They are crowd-pullers and they brought foot traffic which is needed by the retailers. With the going away of the big operators, this will affect the smaller high fashion stores.
It is difficult to refit the different businesses into the footage that Debenhams used to take. We are talking about 100,000 square feet to begin with and to remodel it into community-based with independent shops, one would have to include entertainment, hospitality, fitness clubs, alongside with independent shops.
It is easy to blame for what went wrong, but no one would have expected this darn pandemic to happen and we are still far from over. The last one we know, the Spanish flu, also known as 1918 influenza pandemic, caused by the H1N1 influenza A virus, lasted from February 1918 to April 1920 for 27 months.
Speaking for any changes is not an easy task and for this type of revitalization will require the local city council to intervene. But at this time the local authorities are all cash-strapped and there is no external capital to help.
Retailer’s Rental Arrear
It has been estimated that there are unpaid rents amounted to £2.2 billion from those “non-essential” businesses since the country was lockdown in March 2020. Since that time the government introduced a moratorium on evictions for unpaid rent which is scheduled to run until the end of this March.
The British Property Federation (BPF), British Retail Consortium (BRC) tried to lobby the government in April 2020 to intervene and suggested a Furloughed Space Grant Scheme but it didn’t attract the government. That has led the retailers and landlords to work out the solution and there have been many options, such as
- Split the rental cost, retailers pay half of the rent during the lockdown.
- Defer the rent to a later date when retail sales have recovered.
- Extend the end date of the leases to cover those blank months.
- Modifying the break clauses to make the lease more workable.
But the reality can be very cruel to both the retailers and the landlords as there is this bubble of debt that has been building and this can no longer be able to service. The pandemic has caused the value of the property to drop in its value as the revenue that the retailer can generate in the past can’t be achievable in the future.
For both sides to reach an agreement before the moratorium ends in this March has not been feasible. It is also unwise for the landlords to exercise legal action to collect the debts.
Negotiation can be honest and transparent but unfortunately at this stage it is not leading to anywhere. People ought to understand that the landlords are leveraging their debt and equity with their financiers. Their assets are not worth the value as before and their earning power is depending on the ability to collect rent from their tenants. It is a very much Catch-22 situation.
After all, the landlords are also in hot water but nobody is throwing them the life-buoys.