Does Topshop have a future?

The Arcadia group, which owns Topshop, Topman, Evans, Miss Selfridge, Dorothy Perkins, Burton and Wallis planned to cut rents by up to 70% and close down at least 50 unprofitable stores among the 570 sites they run via the proposal, shedding 1000 jobs.  

The proposal would have handed the landlords a 20% stake in the business, an extra £50m in cash to modernise the stores and additionally, the Greens agreed to provide another £25m into the group’s pension fund to fill a shortfall demanded by the Pensions Regulator. They declared that this was sufficient for them to back the proposed deal but they were only one voice among many.

The landlords of the stores who faced the bleak decision of taking less revenue or possibly be faced with an empty unit if the group were to become insolvent. The deal went down to the wire with some major landlords such as Metrocentre owners Intu declaring against the motion. Others including The Crown Estate, which owns the freehold to the flagship Topshop store on Oxford Street in London backed the deal.

The landlords have logic behind their stance. If they granted Arcadia rent cuts of up to 70% then every well-run tenant could bang on their door demanding the same. They could also take the long view that if Arcadia was to go into administration and their tenants were some of the better known and profitable brands such as Topshop or Topman then they have a better chance of attracting new, stable ownership.

Arcadia were adamant that there was no alternative to the CVA. They said that if the restructure deals were not approved the company was “highly likely, immediately or after a short time period, to enter into insolvent administration or liquidation”.

Each brand had its own CVA to be voted on, complicating the matter further but in the end all seven votes went the way of the owners.

Ian Grabiner, chief executive of Arcadia said: “The company is now on a much firmer footing. I’m confident about the future of Arcadia and our ability to provide our customers with the very best multi-channel experience, deliver the fashion trends that they demand and ultimately inspire a renewed loyalty to our brands that will support the long-term growth of our business.”

The failure to agree on administration last week sent out shockwaves throughout an already beleaguered industry. Monsoon Accessorize, who were already looking into a probable CVA for their business, postponed their meetings with administrators and creditors to allow extra negotiations with landlords who could be emboldened in their positions following the breakdown of the Arcadia agreement.

Is there hope for them?

Research from USB bank already shows the increasing concern from landlords about the increased use of CVAs as a tool to reduce rent.

Analysis shows that nearly 20% of shopping centre floorspace owned by the largest landowners is either in a CVA or administration or at high risk of entering an insolvency procedure. This is in addition to 13% of all UK retail units being vacant in 2019.

The research predicts that the four biggest UK shopping centre owners – Intu, British Land, Hammerson and Landsec – will experience a further 20% decline in the valuation of their centres over the next two to three years.

Osmaan Malik, head of UBS European Real Estate said: “The big unknown is the hits to their rental income. All of the retailers could decide “we’re going to go through CVAs, we’re going to cut our rents or we’re going to move out of the centres we don’t want to be in”.

They also wouldn’t discount retailers already in CVAs coming back for a second bite at rent reductions or even closing stores completely.

Since January 2018, 895 UK stores have closed via CVAs although some have subsequently been re-let.

Financial reporter Nils Pratley captures the reality of the market best with his summary: “The reality at Arcadia is that a near-billionaire asked to pay less rent – up to 50% less – on leases he had freely signeed. And the landlords said yes. It can only mean rents in retail lane still have a long way to fall.”

If you’re company is struggling to make ends meet and think a CVA could be a way out – contact us first.

There might be other options available to you to pursue and even if you decide to go down the route of administration then there are still several things we can do to make it as smooth and stress free as possible.