As the fate of Arcadia hangs in the balance, there is a danger that this week’s CVA vote will turn into a popularity poll on owner Sir Philip Green.
The last year has been tumultuous for the tycoon. Not only is his fashion empire on its knees, he has had a spectacular personal fall from grace as allegations of bullying and inappropriate behaviour made headlines – the latest of which emerged from the US just last Friday.
Some of those allegations, all denied by Green, may make their way to court. That is the right place for them.
A lot of people may not like Green but that should not, on its own, determine whether or not Arcadia, and the 18,000 people who work there, are thrown a lifeline by creditors at Wednesday’s crunch CVA meeting.
There is plenty to criticise about how Arcadia has been run in recent years and that is Green’s responsibility. It’s especially galling that the Green family took a £1bn dividend out of Arcadia. But the vote is not about the mistakes or excesses of the past. It is, like other recent CVAs, about whether the retailer has a viable future.
The Topshop owner is proposing store closures and rent cuts, which should help address costs. It also intends to build its ecommerce operations by, for instance, selling on Asos at long last, while brands such as Evans and Miss Selfridge will refocus away from stores and concentrate on wholesale, concessions and digital. If the plan pays off, an improvement in earnings should be quickly evident.
It might be argued that some of these initiatives, especially the online shift, should have been implemented before now. However, arguments about what might have been are redundant when, if the CVA is not approved, the next stop for Arcadia is administration.
Property owners are being asked to bear the brunt of the pain from the CVA and are justifiably angry about it. They are being offered equity in the event of a sale but, understandably, fear that amounts to jam tomorrow. But the alternative if Arcadia goes bust is no jam at all.
“After the scandal of BHS, it is right that the proposals on pensions face the fiercest scrutiny”
Arcadia is not breaking new ground with its requests. It is the latest in a long line of retailers seeking respite from a retail property model at breaking point.
The evidence is everywhere. Next, for instance, has reported that it negotiated rent reductions of 29% on the leases it renewed last year. That followed a 25% drop the previous year and Next predicted it would achieve “similar reductions in the year ahead”.
In its interim results just a couple of weeks ago, Shoe Zone disclosed it had won rent reductions of 18.5% on the leases it had renewed.
Across retail property, loan-to-value ratios are putting landlords’ covenants at risk.
None of that will change depending upon the outcome of the CVA, so landlords need to make their judgement based on what they stand to gain if an Arcadia turnaround succeeds. It’s hard to see how an administration will secure a better result, because it is unlikely that there would be a queue of takers for premises left empty.
The biggest issue the CVA raises, though, is the security of Arcadia’s pensions. After the scandal of BHS – also formerly owned by Green – it is right that the proposals on this aspect face the fiercest scrutiny.
I’m no expert on pensions, so I’ll take my guidance from someone who is – independent expert John Ralfe.
Ralfe, a former head of corporate finance at Boots, was a specialist adviser to the work and pensions select committee during its inquiry into BHS’ pensions and declares himself “no great supporter” of Green.
“In the absence of alternative medicine, the best option for creditors is surely to support Arcadia’s CVA”
Yet he says the proposals put forward in Arcadia’s case – to halve annual contributions to the pension deficit from £50m to £25m, in exchange for a £100m cash injection by Green’s wife and major shareholder Lady Tina Green over three years – are “a good deal for the Arcadia pension schemes”.
A CVA is never going to be popular. And a CVA from someone as unpopular as Green was always going to be particularly unpopular.
But the vote represents the chance to end up with something rather than nothing.
It may be the bitterest of pills to swallow and it may not work. But in the absence of alternative medicine, the best option for creditors is surely to support Arcadia’s CVA.