Rates, raw materials and wages worry Sir Philip Green despite jump in the fashion group’s profits

Sir Philip Green warned of the soaring costs of doing business as he revealed an increase in profits at his Arcadia Group.

Green highlighted next April’s rise in business rates and said that Arcadia’s rates bill had increased by a third in five years, and by £50m if new space is included. He confirmed he plans to reduce the number of stores in the group, with smaller shops being absorbed into Bhs stores instead. “Our rates bill has climbed and climbed,” he said, criticising the fact that it is based on this September’s RPI inflation rate. “It’s revised based on the time when inflation was at its highest.”

He said property rationalisation was on the cards. “We’ve got a lot of leases expiring over the next three years, smaller shops in city centres that came out of the Burton Group. Everyone knows bigger space is more efficient space,” he said.

Arcadia’s pre-tax profit in the year to 28 August was £213.2m, up 6.4%, while operating profit rose 10.4% to £279.6m. The group generated cash of £386.2m, enabling its bank debt to be reduced by nearly £150m to £464.1m. In the first 11 weeks of the new financial year, UK like-for-likes were up 1%.

Sales totalled £2.8bn, with like-for-likes up 1.3%. Within that, Bhs was up 0.9% while the other brands were up 1.5%, Topshop and Topman having another record year. Describing the individual brands’ performances, Green said: “Topshop and Topman are still growing, Wallis was good, Dorothy Perkins fine, men’s a bit tougher, Evans pretty tough.”

As well as property costs, Green highlighted rising costs in the supply chain. “There’s major cost growth in the supply chain, every retailer will tell you. You have to decide how to manage your business to deal with it. I have to remain cautious, with increases in VAT, rates, raw materials and some wage inflation.”

Green said that the four Bhs stores refurbished in the new format, which was piloted in Uxbridge, have performed well so far, and that Arcadia would consider bringing external brands in after successfully introducing 215 Arcadia brand concessions, mostly Wallis and Dorothy Perkins.

“It’s a mix - we’ve been trialling things, looking at other brands, having discussions. From a cold start we’ve put 200 in and it’s going well,” he said.

He said he was travelling to the US to look at further opportunities after doing a deal on the second Topshop store in the US in Chicago. He said the overseas business would continue to grow next year through wholesaling, which Arcadia has moved into, as well as franchising.