As December, traditionally the height of retail’s peak trading period begins, two of the industry’s most venerable names have been brought low by the Covid earthquake that has shaken the industry.

The collapse of 207-year-old department store group Debenhams and Topshop-to-Burton fashion giant Arcadia threatens the livelihoods of 25,000 people and raises questions not just about their future, but what that means for the wider industry.

Retail Week assesses how the aftershock might play out.

  • Debenhams’ own-brands, website and some stores expected to attract interest from buyers
  • Analysts believe Arcadia brands’ best chance of survival is to be sold separately
  • Administrations and clearance Sales could have ripple effects across fashion retail
  • Closure of Debenhams’ 127 stores will leave 11 million sq ft worth of space empty
  • Retail property director says: “This is going to affect everyone. Everyone from the guy who owns a store on Winchester High Street to the big guys”

Who could potential buyers be?

While the impact of the pandemic hit Debenhams and Arcadia hard, both retailers have struggled for several years and lost market share to competitors.

However, some of Debenhams’ stores and assets such as own-brands are likely to appeal to buyers.

There is likely to be interest in deals for particular branches or parcels of stores. Next is an obvious contender. The fashion giant is pushing hard into the beauty category, a mainstay of Debenhams and has already taken over some former Debenhams premises for its new beauty and home format – the first ones opened in October.

Next Beauty and Home

Next has already moved its beauty halls into former Debenhams locations

Next chief executive Lord Wolfson said, when its plans were revealed, that it was “creating a new force in beauty retailing”. Debenhams’ latest difficulties may give him the chance to cherry-pick more of its premises.

JD Sports, which had considered buying Debenhams only to terminate its interest this week after a poor reaction from investors and the administration of Arcadia –Debenhams’ biggest concessionaire – may also still be interested in the opportunities thrown up by the decision to wind down Debenhams.

So will tycoon Mike Ashley who has had a longstanding interest in winning control of Debenhams.

Shore Capital analyst Greg Lawless observes: “We believe Frasers Group will be watching developments closely, potentially looking at acquiring pockets of stock and certain stores, together with running the slide rule over both the Maine and Mantaray own-label brands.”

He estimates the two brands generate sales of £150m in their own right. In the past, retailers’ own-brands have been acquired following their owners’ collapse – Argos owner Home Retail, for instance, bought Woolworths’ Chad Valley toy brand following Woolies’ demise. 

“From a trading perspective, Debenhams has quite a few strengths – ironically, I think the core retail business is stronger than House of Frasers”

Robbie Feather, former Fenwick chief executive

Debenhams’ brand and website might also draw interest. Online shoppers can still buy from BHS – the brand is licensed and the business specialises in what the original BHS was most famous for: lighting. Similarly, menswear retailer TM Lewin is now online-only after closing its stores in July after the pandemic hit sales through stores.

However, one industry source questions whether Debenhams’ online business would be a sufficient draw on its own to attract much interest. He believes that without stores it would struggle to have sufficient appeal to shoppers and it would be unable to reap omnichannel benefits such as the opportunities from click-and-collect.

He believes there could be value for a buyer in taking control of about 40 Debenhams shops and the website – and to buy Debenhams’ successful Magasin Du Nord business in Denmark, which is not part of the wind-down – and use it as the springboard from which to build a new business.

Mike Ashley Poland Street 2

Mike Ashley has been linked with Debenhams and Arcadia brands

The obvious candidate to buy Debenhams, or most of it, must be Ashley, who could wring the benefits of combined ownership with his Frasers department stores – and perhaps add Arcadia brands to the mix, which he could also buy.

Former Fenwick chief executive Robbie Feather says: “From a trading perspective, [Debenhams] has quite a few strengths – ironically, I think the core retail business is stronger than House of Frasers’ was because of that high percentage of own-brand and its own sourcing.

“If you own all the brands and you can generate high-margin product in clothing, you’ve got a good beauty business and quite a good digital business, then I think there’s good mileage in it.

“If you put that together with House of Fraser, you start to build a picture where you can put 20-plus points on your margin by selling brands you own and you reduce the number of other peoples’ brands so your sales don’t get disintermediated.”

“There are so many young fast-fashion brands and Miss Selfridge is a lot more expensive than most of them… it has struggled to stay relevant”

Chloe Collins, GlobalData

While the Arcadia empire is made up of eight brands in total – Topshop, Topman, Miss Selfridge, Dorothy Perkins, Burton, Wallis, Evans and Outfit – its best chance of survival will be to be sold off into its parts says GlobalData senior apparel analyst Chloe Collins, “with each given the attention and investment needed to stand out in the competitive UK market”.

All eyes will most likely be on the jewel in Arcadia’s crown, Topshop, which is understood to have reportedly already attracted interest from potential suitors including Boohoo, Asos, Next and Ashley.

Frasers Group offered Arcadia a £50m loan, which was turned down, but Ashley has stated an interest in being a part of the sale process for all or some of the group’s brands.

Independent retail analyst Chris Field believes Ashley will most likely be in talks to secure Arcadia’s stock, which he could sell through his own retail channels as well as with third-party discounters – leaving the brands with little value in their own right.

For Boohoo, both Topshop and Topman could be complementary additions to its portfolio, boosting its menswear division and adding to its bulging portfolio of on-trend womenswear brands. 

The fashion giant also specifically set aside funds earlier this year for acquisitions, purchasing the online businesses for Oasis and Warehouse after they collapsed into administration in June.

Arcadia’s Miss Selfridge brand, which has a smaller online and physical footprint, has been working with Asos on a wholesale basis for longer than its counterparts so could make a better acquisition to switch to online only.

Collins believes Miss Selfridge has always lagged behind its competitors so could do with a boost from one of the online players.

“Miss Selfridge has probably had the most competition come in the last few years from brands like Boohoo and In The Style. There are so many young fast-fashion brands and Miss Selfridge is a lot more expensive than most of them,” she says.

“It might be better quality but that demographic of young shoppers just want the latest fashion really quickly and cheaply so it has struggled to stay relevant. 

“It never does any influencer partnerships or celebrity collaborations so it’s fallen behind on social media. 

“Topshop has been affected in the same way but it still has a bit of brand relevance hungover from previous years.”

Wallis

Wallis is one of Arcadia’s brands least likely to attract a buyer

But if a pureplay retailer were to acquire any of Arcadia’s brands it would likely be an online-only move, leaving its stores and the vast majority of the group’s 13,000 jobs behind.

The rest of Arcadia’s portfolio could also do with a digital push to regain relevance within the fashion market.

“Next and M&S have reportedly shown interest in bidding for some of Arcadia’s brands, particularly Dorothy Perkins and Burton, which would have the most appeal among their target demographics,” explains Collins.

“However, Burton’s ranges which mainly focus on formalwear, have been largely redundant throughout the pandemic as consumers work from home and social events have been cancelled.”

Two brands most likely to disappear by the wayside are Wallis and Evans.

Wallis suffers from a focus on workwear, while plus-size specialist Evans have been displaced in the market by trendier brands such as SimplyBe, as well as the extension of many mainstream brands’ sizing.

What will the ripple effects be?

The downfall of Arcadia has undoubtedly caused a domino effect, triggering JD Sports to pull out of the deal to take over Debenhams, which in turn led to the high street stalwart tumbling into administration.

Debenhams Watford

A quarter of Arcadia’s customers also shop Debenhams

While bad news for those that work there, Debenhams’s problems may spell opportunity for others, particularly in beauty. 

Almost a third of Debenhams’ 19 million UK customers are beauty shoppers and the retailer holds leading positions in upscale make-up, skincare and fragrance. It has said it is the “UK market leader in online premium beauty”, which generates sales of about £100m.

“Look at the amount of market share that’s up for grabs,” says one industry source. “Boots has got to be going after that.”

Similarly, in the event that stores close, other retailers will aim to scoop up market share in categories such as fashion. Along with Next, apparel retailers such as M&S stand to gain.

“It’s not just about Boohoo being 100% digital, it’s about how they use digital – social media, influencers, marketplaces, they use every channel available”

Chris Field

In the short term, as clearance Sales get underway soon at Debenhams stores, the issue that might affect others is the extent of discounting – especially ahead of Christmas after a difficult year. One industry source maintained that on past form, Debenhams would probably have been discounting anyway in the run-up to Christmas so the impact may not be great. However, as Debenhams is traded hard during the wind-down process, others may have to follow with price cuts deeper than anticipated.

According to GlobalData, there has a big crossover between Arcadia and Debenhams shoppers with 25.8% of Arcadia shoppers also choosing to shop at Debenhams – likely due to the presence of Arcadia brands such as Dorothy Perkins, as well as the complementary Debenhams brands that appeal to a similar demographic. The administrations of both could spell a heavily discounted run-up to Christmas, which could force other fashion players to offer bigger discounts at the end of an already hamstrung year.

Field believes these administrations and discounting at Christmas could be the straw that breaks the camel’s back for many fashion retailers to scale back their store estates and instead invest in improving their online propositions.

“Anyone who is running a retail chain at the moment will be looking very closely at how well spread they are in terms of their channel mix,” he says, adding that a retailer that may have built up a store estate of 100 or more stores could decide it needs as little as 12-15 today, and instead rely on online to drive sales.

“It’s not just about Boohoo being 100% digital, it’s about how they use digital – social media, influencers, marketplaces, they use every channel available,” Field observes and something Arcadia’s brands failed to do prior to their collapse.

The property perspective

While there was a sense of inevitability about the twin collapses of Arcadia and Debenhams, their failures will not come as any less of a shock to a retail property landscape already reeling. 

Topshop Oxford Street 2020

Topshop is the brand most likely to maintain a bricks-and-mortar presence

At the last count, Arcadia’s various brands currently occupy 444 stores across the UK, while Debenhams operates 127 department stores. 

The biggest issue in the short term is the sheer scale of the retail space that could end up being left vacant. As real estate adviser Altus Group says, the closure of Debenhams’ 127 stores would lead to over 11 million sq ft worth of retail property vacated. 

A complicating issue in trying to figure out what will happen to Arcadia and Debenhams stores is that the two retailer’s property estates are very different. 

Being a department store chain, Debenhams stores tend to be 50,000 sq ft-plus and are either anchors in predominantly secondary shopping centre locations or on more suburban and regional high streets. 

Arcadia tends to have its flagship Topshops in more premium centres and high street locations, while its other brands tend to be smaller high street stores usually no more than 2,000 or 3,000 sq ft. 

“I could see Mike Ashley and Frasers maybe being interested in a couple of those Debenhams in places like, say, Stevenage or Chester. They might not be great shopping locations but they’d be perfect for a Sports Direct,” says one property director. 

“I can also see someone like Next looking to snap one or two of them up to put in another Beauty Hall concept. Other than that? There are virtually no other big-box retailers looking for that kind of space.”

One retail property consultant says he wouldn’t be surprised if a B&M or The Range had a look at the Debenhams estate. 

“Both have traditionally looked at more out of town locations, but there’s a sense that Covid might make people keener to have these kinds of retailers closer to where they live,” he says.

He also does not rule out a move by Ashley, though he does not necessarily believe he will look to turn former Debenhams into new Frasers department stores. 

“If Ashley does move for Debenhams’ store estate, he may well take the 127 on, but there’s no way he’d keep them all open. I think he’d end up with at most a handful and turn them into giant emporiums for his brands. You could have a Sports Direct on one floor, a Flannels on another, a gym at the top.”

As for vacant Arcadia stores, the property director suggests some grocers may be interested in taking over a handful of stores with convenience fascias. 

“I know that some of the supermarkets are looking for small city-centre locations. I know that Morrison’s, for example, are looking aggressively. I think all of them are, in fact, and they’re the ones that could take a fairly big Miss Selfridge on a street location and turn that into a 24-hour convenience store.

“Ikea could be an outside bet. They’re looking at more city-centre locations and betting that city-centre living is here to stay. They’ve certainly got the money to do something like that.”

Ultimately, CWM equity partner Jonathan De Mello cannot see any of the Arcadia brands, beyond Topshop, maintaining any kind of physical presence on the high street in the long term. 

“We will see a large number of additional vacant units hitting the high street in the short-to-medium term. These units will be hard to relet given Covid and any rent would need to be significantly rebased – beyond the reductions Arcadia secured in its 2019 CVA,” he says. 

“It’s so much space coming back on to the market and there’s not a single retailer I can think of that would take anything other than one or two stores”

Retail property director

The primary challenge for the property sector is the size of the hole Arcadia and Debenhams leave on the high street versus the amount of appetite in the market for physical expansion.

One retail property director says: “This is going to affect everyone. Everyone from the guy who owns a store on Winchester High Street to the big guys. The institutionals are going to be screwed by this. 

“It’s so much space coming back on to the market and there’s not a single retailer I can think of that would take anything other than one or two stores.”

One chartered surveyor believes the double whammy of a year of minimal rental income, turnover-based leases and the collapse of two high street stalwarts could trigger more landlords going to the wall in the coming months.

Topshop Manchester 2020

A huge amount of retail space could soon be vacant across the UK

As one chartered surveyor observes: “From the landlords’ point of view this has come at a really tough time, after the year they’ve had, because frankly, the coffers are all pretty dry.

“I know many of these companies, big and small, their credit cards are maxed out. I think next year we will definitely see more issues around property owner liquidity.

“There are a lot of property companies out there and you have to wonder whether they can all cope? I think the answer is not.”

Whether its landlords, fellow operators or pureplay competitors, the shockwaves of Arcadia and Debenhams’ demise will be felt across the sector for months to come.