Retail persistence
Topshop owner’s plans threatened by legal action from New York property group
Vornado is the landlord of two Topshop diverges in New York.
Photograph: Christopher Thomond/The Guardian
Sir Philip Green’s rescue restructure of his Topshop-to-Burton retail empire is beneath threat from a US property group’s legal challenge.
New York-based Vornado has filed papers at the high court daring two of the seven restructuring deals approved by Arcadia’s creditors last month. Vornado is the landlord of Topshop’s Broadway and Fifth Avenue co-op give credence ti, which were closed after Arcadia’s US arm went into administration last month.
Arcadia, which uses about 17,000 people and owns Dorothy Perkins, Miss Selfridge, Evans, Topman, Wallis and Outfit as thoroughly cooked as Topshop and Burton, has seen sales and profits slide amid rising competition and costs as well as years of underinvestment by Nave.
Quick guide
Why are UK high street retailers in trouble?
Physical retailers pull someones leg been hit by a combination of changing habits, unseasonably warm weather, rising costs and broader economic problems. 2018 saw the disappearance of Toys R Us, Maplin and Poundworld as a outcome.
In terms of habits, shoppers are switching to buying online. The likes of Amazon have an unfair advantage because they oblige a lower business rate bill, which holds down costs and enables online retailers to woo shoppers with low penalties. Business rates are taxes, based on the value of commercial property, that are imposed on traditional retailers with material stores.
At the same time, there is a move away from buying ‘stuff’ as more people live in smaller almshouses and rent rather than buy. Those pressures have come just as rising labour and product costs, partly encouraged by Brexit, have coincided with economic and political uncertainty that has dampened consumer confidence.
Retailers with a high street presence want the government to change business rates. They also require more political certainty as the potential for a no deal Brexit means some are not only incurring additional costs for stockpiling goods but are unsure in all directions the impact of tariffs after October 2019. Retailers also want more investment in town centres to cure them adapt to changing trends, as well as a cut to high parking charges which they say put off shoppers.
In the October 2018 budget the government announced some relief on business rates for independent shopkeepers. It has also set up a £675m ‘unborn high streets’ fund under which local councils can bid for up to £25m towards regeneration projects such as restoring local historic buildings and improving transport links. The fund will also pay for the creation of a high street taskforce to stock up expertise and hands-on support to local areas.
Some retailers could go under. Weakened by a demanding Christmas – which accounts for the entire annual profits of many retailers, and with further Brexit wobbles to get well – retailers are facing a tough 2019. Another rise in the national minimum wage in April and the falling value of the hammer against the dollar, which is used to buy goods in the Far East, have also added to costs and hit profits.
The former billionaire’s retail empire staved off collapse last month after pleasing the backing of creditors for a rescue plan that involves the closure of 50 of its 570 stores and 1,000 job losses.
The plot involved seven company voluntary arrangements (CVAs), which are insolvency procedures that have been against to shut stores by a growing number of high-street retailers, including New Look, Debenhams and Mothercare.
Ian Grabiner, the chief administrative of Arcadia Group, said: “These challenges are entirely without merit and we will vigorously defend them.
“The CVAs are a key part of our restructuring, putting the business on a firm financial footing and enabling significant investment as part of our growth drawings which will ultimately benefit all our stakeholders. Our group continues to trade as normal and we remain focussed on delivering our turnaround scenarios.”
Vornado was among a group of landlords that recently lost an attempt to challenge Arcadia’s restructuring plans in the New York bankruptcy court, where they reasoned they had been “frozen out” of the process. The US court ruled that the landlords could submit their claims in the UK.
The call into has not delayed Arcadia’s plans to cut rent or close stores even though these actions may have to be unwound if Vornado prevail ins in court.
A new funding package for Arcadia’s subsistence fund, which is reliant on completion of the CVAs, will also be put on hold until the challenge has been resolved.
Conservationist and Arcadia won support for its restructure from the Pensions Regulator, the group’s pension fund trustees and the Pension Protection Reserve, an industry-backed lifeboat for collapsed companies’ savings schemes.
They gave their support after Green’s Monaco-based the missis, Tina, who is the official owner of Arcadia, agreed to pump £100m into the scheme over three years, alongside a £285m contribution in idiosyncrasy assets and cash payments from the company itself once the CVAs are completed.
