Fast Fashion Days Are Tough! Topshop Parent Company Will Go Bankrupt.

With the gradual progress of the de European process, Britain's fast fashion may be facing the most severe challenges in history.

According to British Sky News quoted sources, Philip Green, the parent of Arcadia, the parent company of Topshop, is consulting with the consultant on the CVA proposal of voluntary bankruptcy agreement, and plans to carry out bankruptcy reorganization. The proposal will be submitted to creditors as early as possible next month.

Previously, the group has convened consultants to assess the size of its stores, making it clear that it will bet on the online market in the future, which means that a large number of stores will be closed.

However, the Arcadia group's CVA application must be approved by the creditor and pension supervision agency. The latter will only approve the proposal only if it ensures that the reorganization can enhance the Arcadia group's ability to fulfil their pension contributions obligations.

According to information released by members of the British Parliament in 2017, the Arcadia group's pension deficit has exceeded 565 million.

According to the latest data released by Forbes, the wealth of Philip Green has shrunk by 27% to 3 billion 500 million US dollars compared with 4 billion 800 million US dollars in 2018.

Up to now, Arcadia group has not responded to the news.

Arcadia group was founded by Philip Green, founder of Topshop, and owns brands including Topshop, Topman, Miss Selfridge, Burton and Dorothy Perkins. Currently, it operates more than 1500 stores and franchise stores in the UK, with a total number of employees exceeding twenty thousand, and 75% of the shares of the company, which is controlled by the real wife of the wife, and 25% of the shares, was acquired by the US private equity fund in 2012.

According to fashion headline data, in the 12 months ended August 26, 2017, group sales fell 5.3% to 1 billion 900 million pounds compared with the same period last year, while operating profit dropped by 48.5% to 71 million 600 thousand pounds from 139 million pounds in the previous fiscal year. During the period, the loss of two brands of Topshop and Topman reached 11 million pounds, while sales fell by 6% to 933 million pounds over the same period.

The group said that the reason for the loss was mainly related to rising rental costs.

According to analysts, Arcadia group spent about 128 million pounds on rent last year.

Since 2016, the brand of Arcadia group has closed 210 stores in the UK. At present, 100 brand store tenancies will be closed after the expiry of 2020. Topshop abruptly closes Tmall flagship store and withdraws from the Chinese market at the end of last year.

According to Sky News, formal negotiations with landlords are expected to begin in the next few weeks, which may have a serious impact on certain brands of the group.

At the end of February this year, the insurance company Euler Hermes decided to further reduce the Arcadia group's credit insurance limit.

The credit insurance quota is the credit guarantee provided by the supplier to the retailer. The weakening of the quota makes the supplier unwilling to provide the retailer with the product or ask the retailer to provide the advance payment, which means that the cash flow of the Arcadia group will be seriously affected.

Some analysts pointed out that the bankruptcy of Arcadia group, which is regarded as the fast fashion textbook in Britain, will cause a lot of store failures and employee unemployment, which will further blow up the British retail industry.

Before that, British fashion retailers such as New Look, French Connection, LK Bennett and House of Fraser also filed for bankruptcy protection or were sold for sale. Marsha's department plans to close 100 British stores or cut 1000 jobs.

According to Altus data from British real estate research firm, since last Christmas, there are 400 unemployed people in the high street fast fashion industry including Topshop, New Look and so on. So far, 14 thousand jobs have been lost and 4345 jobs are still in danger.

What is more worrying to investors is that according to the latest high street retail tracking data released by BDO UK, retail sales in February were the worst in 10 years, while sales in physical stores fell by 3.7%. Sales of fashion brands fell 3.5%, down 1.9% from the same period last year. This further highlights the crisis faced by British retailers, which is mainly affected by rising operating costs and weakening consumer confidence.

The fact is that since the British vote to withdraw from the EU referendum for almost three years, the UK did not have a clear schedule for European delaying. Although many achievements have been achieved after many consultations, the British's efforts to postpone the move to Europe are controversial, and the voice of re referendum is getting higher and higher.

At the same time, the younger generation's awareness of environmental protection is increasing, and 13% of British consumers are more willing to buy cost-effective clothing than low prices, and nearly 39% of the consumers say they will spend more money on high price but high quality clothing.

By comparison, only 26% of British consumers said they would buy fast fashion clothes.

In addition to environmental problems such as rising costs and falling consumer desires, Arcadia group is also deeply influenced by the scandals of Philip Green's alleged sexual harassment of several headquarters employees.

At the end of last year, Philip Green was accused of using confidentiality agreements to curb the victims of sexual harassment, exposing his behavior and paying more than 1 million pounds to the informed employees.

Although Philip Green subsequently denied this statement, British congressman Peter Kyle has sent a letter to the metropolitan police chief, asking the police to investigate the matter and win the compensation for the victims. The Labor Party chairman Ian Lavery called on the government to deprive Philip Green of the title.

In addition, Philip Green was also accused of making profits from the closure of BHS department store. The closure of the company resulted in over ten thousand unemployment and a pension deficit of 571 million pounds. Philip Green agreed to pay 363 million pounds to the BHS fund a year later.

According to a British report, since the scandal broke, Topshop's Buzz score has dropped from 0 to -7, and the score in the brand target customer group, that is, 18 to 34 year old consumers, has dropped more sharply from 14 to 3. YouGov expects Topshop to continue to face serious challenges in the coming months.

The industry said that, considering the UK's sluggish retail industry, sales of Topshop could hardly improve in the short term. The sale may be a good choice, but the buyer's final bid for Arcadia group may be less than 500 million, because after the acquisition of Topshop and Topman, it will face heavy reorganization and deal with a large number of redundant stores.

What is most significant is that last year, a source of information revealed that in order to maintain the core Topshop and Topman, Arcadia group has already sought buyers for two brands through HSBC, and the two may also be sold separately.

There had been rumors that Shandong Ruyi Group intends to buy, but the two sides later denied the matter.

Author: Zhou Huining