Arcadia figures show extent of consumer shopping behaviour change
After its annual results were flagged up in the past few days, fashion retail giant Arcadia’s parent firm finally filed its accounts for the year to last August at Companies House, giving us a much clearer picture of just how well (or badly) the firm has been doing.
And the verdict? Well, the figures don't make happy reading but nor do they show a business on the ropes. They do show that the BHS collapse in 2016 put a strain on the company and that consumers have either been buying fewer new clothes, shoes and accessories or they’ve been buying them at Arcadia’s nimble rivals like Ted Baker, Boohoo, Asos and Superdry which have all been prospering of late.
Now for the numbers. Sir Philip Green’s Taveta Investments, which owns Arcadia - and through it major chains like Topshop, Burton, Wallis and Dorthy Perkins - delivered pre-tax profits of just £36.8m, down sharply from £172.2m a year earlier. UK revenues fell from £2.2bn in 2015 to £1.7bn. But while £370m related to losses from discontinued operations like BHS, that still leaves an overall fall year-on-year once that £370m was factored-out.
“Clothing has become a less important part of the household budget,” Taveta said, although the big question to ask here is, has it really?
Taveta partly answered that question itself, saying that “the retail industry continues to experience a period of major change as customers become ever more selective and value conscious and advances in technology open up more diverse, fast-changing channels.”
In short, fashion does still matter to consumers, but with the rise of much more affordable labels, they’re often looking elsewhere for their fashion fix. And ‘elsewhere’ in this case often means online with pureplay rivals. It also means at increasingly-style-conscious supermarkets, at budget-priced chains and at newer, fresher businesses that have more of a buzz around them.
Back with the results statement, Taveta said that other issues during the year in question included the Brexit vote, which drove the pound lower and created a whole new set of problems as currency exchange effects made imports more expensive.
And despite Taveta having offloaded BHS before the financial period in question, the scandal surrounding the chain’s demise last year costs the business £26.4m in lost profits.
There were also one-off charges related to “onerous leases” that ate into profits. Arcadia may be one of the UK’s biggest fashion retail names with plenty of bargaining power when it comes to property rentals. But it is still suffering from the high costs of physical stores at a time when consumers are increasingly migrating online.
So what is the company doing about it? It’s already been widely flagged that Arcadia, a group not known for its love of external consultants, has called on McKinsey & Co to advise it about a strategy to boost sales both online and face to face. And it is also looking at “initiatives to improve margin to offset the ongoing impact of weaker sterling”.
With no news yet on a new managing director for star chain Topshop, on whether Arcadia will take over the failed Australian operation of Topshop/Topman, the industry is keen for quite a few answers around what’s happening at Arcadia.
But with the firm being privately-owned rather than listed, it’s unlikely answers will come thick and fast and it could be some time before we know just how any changes it makes will play out.
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