Chana Baram
Chana Baram is an Analyst at Mintel focusing on the Retail sector. She harnesses her previous experience to analyse and write reports on the UK market.

Arcadia Group, the fashion group which includes the Topshop, Dorothy Perkins and Burton brands, has collapsed into administration this week after a £50 million emergency loan to help shore up its finances reportedly fell through. This has been a devastating week for UK retail and the high street, with Arcadia’s administration inadvertently leading to the collapse of Debenhams. Following the demise of these British retailers, we explore the challenges that lead to this and what lessons retailers could learn from these events.

Arcadia Group enters administration as £50 million loan falls through

Arcadia, which has more than 500 retail stores across the UK, is the latest retailer to have been hit hard by the closure of stores during the COVID-19 pandemic. Earlier this year, the group revealed plans to cut around 500 of its 2,500 head office jobs.

Topshop owner Arcadia has collapsed into administration

Source: The Guardian

Although it is tempting to blame slow sales on the COVID-19 pandemic and forced closure of stores, the truth is that this news has not come as a surprise. The retail group has been struggling for several years now, entering into a CVA last year to remove some of its exposure to the high street, as rates rose and young shoppers embraced multi-channel shopping. Topshop and Topman used to be seen as the epitome of ‘cool’ among young shoppers and was an early adopter of the celebrity collaboration with its Kate Moss collection that caused a huge buzz way back in 2007. However, since the rise of online retailers, the Arcadia brands have struggled to keep up and are unable to compete with retailers like boohoo, H&M, Primark, Zara and ASOS on either price or style. If some of the brands are going to survive this, a rehaul is needed to make the brand more appealing to a younger shopper as well as a focus on digitisation.

Debenhams set to close its 124 stores

Debenhams was forced to close its stores

Source: Getty Images

Debenhams stores are set to permanently shut after efforts to save the department store chain failed. Around 12,000 employees are likely to be made redundant as the retailer closes its 124 stores. Restructuring experts Hilco have already started entering stores to start clearing stock.

Ordinarily, there may have been some hope that there will be a future for Debenhams, but in these trying times, it is difficult to imagine a rescue deal now that JD Sports has pulled out. Debenhams’ problems, as with Arcadia’s, outdate the pandemic. Prior to 2005 the business was doing well – its Designers at Debenhams strategy resonated with its consumers and helped it to perform. However, this sparked the interest of an asset stripper which led to the retailer being laden with large amounts of debt. After re-floating on the stock market it needed to pay down some of this debt, leaving it with little spare cash for investing in its stores and in online retailing. This has become increasingly apparent and has led Debenhams to where it is today – many of its stores failed to provide consumers with an enticing shopping experience and were in desperate need of innovation. 

Most recently, it entered administration for the second time in the space of just a year in April 2020 after responding to the need to shut stores – the retailer was over-exposed on the high street, with many people turning to retailers such as Amazon, which effectively functions as an online department store. However, this came too late, Debenhams has 124 large stores and these will be difficult to fill, leaving yet more empty stores along the high street. This, along with a large closing down sale during the peak Christmas trading period, will likely make a further dent in the footfall and revenues across other retailers.

What can retailers learn from this?

Even before the pandemic, times were hard for the retail industry – over the past few years we have seen various retailers such as Mothercare, ToysRUs, Warehouse and Karen Millen to name a few, disappear from the high street. However, 2020 has exacerbated a lot of the ongoing issues – mainly the threat from online (the lockdowns have acted as accelerants for digital retailing) and the polarisation of the market. 

As a result, the retailers that are surviving, and even thriving, throughout this period are those that have a substantial online business, offer good value for money, and span multiple sectors and categories such as Next and Amazon

While there will likely always be a place for physical retailing, particularly when stores offer services that cannot be found online (such as personalised customer service), shoppers are now comfortable going online. Therefore, retailers must invest in their digital operations to make this mode of shopping as seamless and convenient as possible. Innovation in online services such as fast delivery, digital fit tools or video customer service options is now a must.