In his decade-long tenure at Arcadia, Sir Philip Green has confounded his critics, rode out tough trading and pushed his retail empire in new directions.
Fashion top man Sir Philip Green was in bullish form last week as he celebrated a decade of ownership of the apparel group Arcadia.
Almost 10 years to the month since buying Arcadia for £850m in October 2002, he was able to unveil a 25% increase in profits for the last financial year to August 25.
The earnings improvement, pre-exceptionals, followed a fall the year before, when the retailer chose to absorb the VAT increase rather than pass it on to shoppers.
The most recent year’s profit rise was on the back of flat sales and Green acknowledged that efficiencies, such as improved stock management and better management of markdown, played an important part.
But the irrepressible tycoon is, typically, most excited about future growth prospects – in particular, his ecommerce and international operations that he sees as underpinning continued expansion opportunities.
It is easy to see why. Arcadia’s etail sales leaped by 22% last year, compared with an underlying UK retail like-for-like decline of 3.2% and total like-for-likes down 0.7%.
In the UK, ecommerce sales climbed by 20%, while internationally they were ahead 33%. Dedicated websites for France, Germany and the US have been launched, and Arcadia now serves 112 countries online.
Speaking at last week’s results breakfast for Arcadia senior managers, Green could not resist a dig at online fashion star Asos. Arcadia is outperforming the etailer’s UK growth, he maintains, despite Asos having “nicked” staff from him.
Emphasising how the retail environment and consumer behaviour has changed over the past 10 years, Green says: “In our first year, there was about £21m of ecommerce. It’s many multiples of that today, and the most recent language sites are going great guns.”
The retailer has innovated online during the past year. For instance, its flagship Topshop business utilised to great effect social media site Facebook during London Fashion Week in September.
More than 2 million people in 100 countries tuned in to a live streamed fashion show. The retailer said at the time it had achieved the highest-ever online audience for such a show as more than 200 million people viewed images and content.
Topshop reported afterwards that some items, including a printed panel dress, sold out within an hour and that traffic to Topshop.com from the US hit record levels.
Online development dovetails well with Arcadia’s burgeoning international ventures, and Green flags the success of existing overseas stores and his plans for the future. Arcadia opened 15 franchised and international stores last year, and now has 615 franchised outlets in 39 countries.
Green says he is interested in building a Chinese business and wants to “conquer America properly”. At present there are three Topshop/Topman stores Stateside, and a fourth is scheduled to debut in Los Angeles in the spring.
In July, Green also struck a deal with legendary US department store retailer Nordstrom to open Topshop and Topman concessions in its 14 shops and sell product online – an enterprise taken from discussion to realisation in 83 days.
“The results so far are very encouraging,” says Green. “It’s exciting that we’re in places we’ve never dreamed of, like Hawaii. The difference with America is it’s such a big market. I think we can grow Nordstrom and grow the standalone business.”
He also highlights the success of Topshop/Topman in Australia. A store in Melbourne, Green says, has generated “record results”, and it is expected to have achieved revenues of £15m in its first year, which comes to an end next month.
A store in Sydney has been “the second most successful in the world”, in terms of its sales density – £2,170 per sq ft in its first seven weeks. A first South African store, in Johannesburg, opened last week.
Green has also brought some international glitz to his UK business with the launch of the Kardashian Kollection, designed by the US reality stars, in Dorothy Perkins stores.
The arrival of the range, accompanied by appearances by the Kardashian sisters, sparked frenzy at the Westfield London shopping centre earlier this month as thousands of fans descended. Green says of the range: “It got off to a great start, but you can’t judge it on one or two weeks.”
For Green, Arcadia’s performance since he took control is a matter of pride, and he believes the business should be seen as a “great British success story”. He says: “Let’s get out of the doom and gloom that you have to apologise for being successful.”
The landmark Topshop store on London’s Oxford Street is expected to turn over £165m this year compared with £65m when he took over. “That’s one mark of success,” he maintains.
And he is also adamant that concerns in some quarters when he took over at Arcadia were misplaced. There has been more than £1bn of investment in the business during his tenure and employment levels have been maintained.
“A lot of people, I think, were concerned about what would be the transition from a public to a private company,” he says. “A lot of those people are still in the team today.
“When I opened my first store in Conduit Street in 1979, I didn’t think the journey would take me to where we are in 2012 with 3,000 stores. It takes a lotta, lotta people to make that happen. It’s been a very fun journey. The spirit of what we wanted to achieve, we’ve achieved. We haven’t been scared to invest. We’ve carried on inventing and creating.”
When he issued Arcadia’s results in 2011, Green indicated that he might close a swathe of stores. There have been approximately 60 closures, leaving Arcadia with about 3,000 stores. His fascias have performed with varying degrees of success. While Topshop and Miss Selfridge have done well, others have been more subdued.
But he also gave the impression that there may be more takeover deals to come as the retail landscape is reshaped. Although he insists that he has no particular target in his sights at the moment, he says: “Is there one more big deal? Who knows? We want to have a seat at the table if there is consolidation in the sector.”
He added: “We’re well positioned. We want to be in the discussion if there is one. We’re not heavily borrowed. We have a first-class record with our banks. I’ve got no worries about raising very substantial sums of money if we want to do something.”
Green is also at pains to point out that Arcadia has been a goodcorporate citizen under his ownership, referring to the lightning-rod issue of corporation tax.
Setting the tax record straight
The tax paid by companies has taken centre-stage as the country comes to terms with austerity.
A fortnight ago, representatives of Amazon, Google and Starbucks were hauled before Parliament’s Public Accounts Committee to explain their stances on corporation tax.
Green has personally come under attack from protest groups such as UK Uncut. Yet he pointed out last week that Arcadia has paid £591m in corporation tax in the past 10 years.
In the five years before he took control of the group, when Arcadia was still listed on the Stock Exchange, it paid only £50m.
Green says: “I want to give you a few statistics. We’ve paid £591m in corporation tax over the last 10 years.”
He continues: “In 2002 our rates bill was £103m. Our bill last year was £152.9m. Over 10 years we’ve paid £1.3bn in rates.
“We’ve paid £2.34bn in taxes inour tenure. In addition, we’ve invested in excess of £1bn in capex across the group. We’ll continue to invest and I hope that demonstrates we’re here for the long term.”
As December approaches Green’s attention, like that of all retailers, is focused on Christmas trading, the most crucial selling season of the year. He is reluctant to call how the festive season might play out. “Who knows?” he asks. “The final three days can change the final three months.”
However, the signs are encouraging. In the first 10 weeks of Arcadia’s new financial year, like-for-likes – including VAT – were up 0.7% year on year and margin was “positive”.
A business in control
Conlumino lead analyst Matt Piner says: “In a tough trading environment, Arcadia has grown profits through tight control of costs, improving the margin mix and international expansion.
“As a large, mature retailer with a broad demographic appeal, Arcadia is understandably finding UK sales growth difficult. Therefore, focusing on more profitable garments and diversifying sales abroad is a sensible tactic.”
Green concludes: “Trading conditions remain challenging, therefore exciting and engaging our customer across multi-channels is at the top of our agenda. Product handwriting, quality and value are more important than ever.”
Despite tough conditions for retailers, Green displays the same robustness and self-confidence as he did when acquiring Arcadia a decade ago.
How arcadia adds up
- Global store count About 3,000
- Number of international franchised stores 615
- Group chief executive Ian Grabiner
- Total sales (52 weeks to August 25) £2.68bn (last year £2.68bn)
- Group pre-tax profit, pre-exceptionals £166.9m (last year £133.1m)
- Underlying UK retail like-for-likes -3.2%
- Total like-for-likes -0.7%
- Ecommerce sales +22%
Brand building improvements made at BHS
Sir Philip Green is best known for his ownership of chains such as Topshop and Miss Selfridge, but he also, of course, controls Bhs, which he bought in 2000 for £200m, two years before his Arcadia acquisition.
Bhs has been integrated into Arcadia as Green sought to make the most of efficiencies and his stable of brands.
The clothing and homewares retailer has had a tough time in recent years, but Green is confident that Bhs will be put on the right path under new managing director Richard Price, former menswear trading director at Marks & Spencer.
A new marketing campaign is designed to “create a bit more of a brand again” for Bhs using the strapline ‘You’ll never guess. It’s Bhs’. “We’re confident we’ve got a plan,” says Green.
He notes: “We’re several tens of millions lighter on stock and prices are probably sharper than a year ago.”
Arcadia brands have been introduced to Bhs stores where appropriate, and Green says the programme has probably been taken as far as he would like: “In the round, we’re probably where we want to be.”