The Arcadia collapse: A failure to innovate or a severe pandemic high street retail trend?

Sir Phillip Green’s Arcadia Group Plc has collapsed into administration, leaving the future of notable fashion retail brands like Topshop and Dorothy Perkins in disarray, where Arcadia’s 444 high street UK stores and 13,000 jobs hang in the balance. The Group’s Chief Executive Officer Ian Grabiner blames the pandemic for the high street giant’s demise; touting that “the impact of the Covid-19 pandemic, including the forced closure of our stores for prolonged periods, has severely impacted on trading across all of our brands”.

This collapse may give an indication of a following retail trend which may seal the high street retail’s fate, leading to the collapse of other high street firms. Deloitte, as Arcadia’s administrator, has referred to this collapse as becoming one of the country’s biggest corporate casualties of the COVID-19 pandemic so far. However, some critics have attributed this collapse to nothing other than the inadequacy of Arcadia’s businesses and brands themselves, failing to innovate to the changing e-commerce market, rather than it being solely caused by the struggling retail market during the pandemic.

At the height of lockdown restrictions as in April of 2020, total retail sales fell by a quarter compared with pre-COVID levels. Clothing retail stores were one of the worst-hit sectors in the retail market by the pandemic, as concluded by the Office for National Statistics (ONS); where clothing sales were down four-fifths and have remained more than a quarter below pre-crisis levels as of September.

Moving into the later (or final) months of the year, retail sales volume has increased for six consecutive months as of October. On the other hand, clothing retail sales volume, specifically, has diminished, presumably from the restrictions imposed for non-essential retail lockdown measures. There has been significant growth of online sales, which is common to all retail sectors. Across all retailers, online sales have grown by 60.1% from last year, and among clothing retailers, online sales have grown by 34.4%. It is therefore apparent that the restrictive rules imposed in the governmental response to the pandemic, such as the prevention of the opening of non-essential retail stores and social distancing measures, resulted in a drive for greater online sales. 

At first glance, Arcadia’s CEO’s claim that the collapse was due to severe trading loses resulting from the pandemic would seem to be valid. However, this has been criticised in that Arcadia’s losses and lack of profitability predate the pandemic. The pre-tax profit of Taveta, the overall holding company for Arcadia, declined from its peak in 2013 of £300m to £122m in 2018, comprising mainly of interest generated from loans to other companies. Arcadia’s market share of UK clothing has also shrunk by a third over the past decade according to Euromonitor. Arcadia’s largest brands Topshop and Topman have seen a £500m loss in 2018 with sales falling 9%.  

Considering Arcadia’s predated losses, the group’s brands lost significant market share to the wave of new disruptive online competitors including ASOS and Boohoo, and significantly failed to expand quick enough into the emerging e-commerce sphere. Only in 2019 did the group relaunch its websites and brands online, with delivery plans comparable to ASOS Premier for instance, after it was criticised for its uncompetitive online offering. Disruptive, e-commerce platform ASOS has greatly expanded its market share as the pre-tax profit for the year to August 2020 was £142m, up from £33m last year.

Overall, the switch to more prominent online sales means the high street remains under continuous pressure to innovate. This collapse of Arcadia represents a trend of brick-and-mortar high street retail stores succumbing to pressures from online competition, which continues to develop and has been recently exacerbated by the online sales driven from the pandemic. Recently, Debenhams, which offers a significant foothold of 124 stores on the high street, is on course to be liquidated in the new year, which is additional evidence of the shortcomings of the high street, in lieu of increased competition from online retail.

Arcadia’s collapse does not solely result from pandemic laden restrictions from lockdowns of non-essential retail stores or social distancing measures, but rather a predated trend of losses due to a failure to innovate and adequately compete with online e-commerce retailor disrupters, including ASOS and Boohoo. Although the pandemic has driven increased demand for online sales,  as one critic put it ‘the pandemic didn’t kill the brand…it just struck the final blow’.

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