Philip Green Loses Battle to Retail of 21st Century
(Bloomberg) -- Just over a decade ago, Philip Green was reveling in his global ambition. Opening his first Topshop store in New York in 2009 with glittering events attended by supermodel Kate Moss, rapper Jay Z and Blondie star Debbie Harry, shoppers lined up around the block.
What’s now clear is that the decline of the British retail tycoon’s empire was already in motion even then. As rivals embraced online sales, Green remained skeptical about the power of the internet. Now with the coronavirus pandemic, Green’s Arcadia Group has finally succumbed to its underinvestment in e-commerce and overreliance on stores.
Late on Monday, the business filed to enter insolvency proceedings. Arcadia’s collapse, with the potential closure of 466 stores and 13,000 employees out of work, will be the heaviest blow yet for a British industry that was already on track to lose 235,000 jobs this year.
For the 68-year-old Green, it could close the book on a career that saw him go from “King of the High Street” to being depicted as an unrepentant villain funding a lavish lifestyle in Monaco on the proceeds of businesses run into the ground. Green hasn’t resided in Britain since he was hit by allegations of sexual harassment, racial abuse and bullying, all of which he denies.
While there’s no doubt the forced closure of stores because of Covid-19 dealt the final blow to Arcadia, this was a business that had long been living on borrowed time after failing to spot the emergence of online shopping.
Anecdotes abound of Green’s dismissal of the internet’s threat, his dislike of smartphones and technology. During a parliamentary committee hearing into the controversial collapse of BHS, a department store chain he had owned, Green told U.K. lawmakers that he tried to avoid email “so I don’t get into trouble with you guys turning up all these bits of paper.”
“The story is being told now, but it was written 10 to 15 years ago really,” said Tony Shiret, a retail analyst at Panmure Gordon & Co Ltd. “With both BHS and Arcadia, the surprise is that they have carried on for as long as they have given the market challenges they faced.”
A close business associate of Green said he bought about 30,000 pounds ($40,000) of shares in online fashion retailer Asos soon after it debuted on the stock market in 2001. The associate happily watched the share price rise from 20 pence to nearly four pounds. He then asked Green what he thought of Asos, the person said, declining to be identified by name.
Green told him it wouldn’t last, so he sold. The stock went on to hit 80 pounds at one point. “I just thought to myself, ‘well thanks very much Philip’,” the person said.
Arcadia owns brands that are stalwarts on shopping streets and in malls across the U.K., including Topshop, Topman, Dorothy Perkins and Burton. Entering what’s called “administration” in the U.K. will allow the company to seek protection from creditors while keeping stores open and management in place under supervision.
While sales increased in recent years, they failed to keep up with rivals such as Asos, Boohoo.com and Zara. They also trailed Primark, a value retailer that doesn't have a website.
Indeed, it’s been a precipitous fall in market share for nearly all Arcadia’s brands. When the company could have been investing in online in the early 2000s, the business was paying dividends to the family of Green.
In the years since Topshop debuted in New York, Arcadia sank from a pretax profit of 200 million pounds to a loss of 177 million pounds in 2018, according to accounts filed by parent company Taveta Investments Ltd.
Its current financial position is likely to be far worse as it continues to lose customers. Five years ago, Arcadia was the fourth-largest clothing business in the U.K., but it now has just 2.7% of the market, according to research company GlobalData.
Arcadia, like some rivals, has also been bogged down by high rents and property taxes that have further cramped investment in its stores, websites and operations. Last year, it carried out a company voluntary arrangement, another form of U.K. insolvency, to close stores and slash rents to cut costs. It wasn’t enough, though, to staunch hemorrhaging sales.
“Philip Green should be given some credit for keeping people in jobs much longer than might have been expected,” said Shiret, the analyst.
A Londoner, Green started out making his way in retail by buying excess stock from bankrupt companies and selling it on. It was only at the turn of the millennium that he really became a name in retail after carrying out a series of deals to buy BHS and Arcadia, interspersed with two unsuccessful bids to buy Marks & Spencer Group Plc.
It was during that period when Green gained a reputation for being brash and hard-nosed. Bad-tempered and often foul-mouthed calls to journalists, bankers, analysts or anyone who crossed him the wrong way became legendary.
By 2005, Green awarded his wife, Tina Green, the ultimate owner of Arcadia, a 1.2 billion-pound dividend. It was the biggest pay check in British corporate history.
A decade later, that came back to haunt him as he became the lightning rod in the U.K. for anger over unbridled capitalism. After having missed opportunities to sell the long-struggling BHS in the past, he finally off-loaded it in 2015. The business folded just a year later.
At the height of the scandal, Green was pictured relaxing on the family’s luxury yacht, replete with swimming pool and helipad, in the Mediterranean. During his parliamentary appearance, Green accused critics of his business of being envious and jealous of his success.
The problem was that the BHS’s failure coincided with a sustained downturn in Topshop’s performance. When Green last gave evidence to lawmakers he said: “I am not clever enough to undo the past. You can’t trade backwards, only forwards.”
Where that path goes now is unclear as potential bidders start to pick apart his Arcadia Group. Frank Field, a U.K. lawmaker who led the drive to strip the tycoon of his knighthood, said it all comes down to greed.
“He wished to acquire a stock of wealth for his family rather than invest in his businesses to keep them ahead of the curve,” Field said. “He is paying the price now.”
©2020 Bloomberg L.P.