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Mitchell Charlesworth on the collapse of Arcadia and Debenhams

Jeremy Oddie, corporate recovery and insolvency partner at accountancy firm Mitchell Charlesworth, comments on the collapse of Debenhams and Arcadia and the uncertainty facing the UK retail industry.

Last week it was confirmed that all 124 Debenhams stores are set to close after the final efforts to rescue the ailing store chain failed. It means all 12,000 employees are likely to lose their jobs as a result of the liquidation. The news broke just hours after Topshop, Burton and Wallis owner Arcadia fell into administration, putting 13,000 jobs at risk.

The news is hardly a surprise.

Debenhams has been struggling for years and has been placed in administration twice over the last two years. Covid-19 lockdowns proved the final straw.

Arcadia has been struggling against newer, online-only fashion retailers such as Boohoo, Asos and Pretty Little Thing for some time. Years of underinvestment in its digital platforms meant it failed to keep up with its e-commerce rivals and like Debenhams, its vast and expensive store estate has been mainly shut due to the pandemic.

Both Debenhams and Arcadia failed for a number of similar reasons.

Whilst no one was prepared for the pandemic, others acted quickly and adapted their business model to survive. The intermittent effect of Covid-19 and the fast pace at which lockdowns and store closures have been implemented has made the retail arena very unpredictable and difficult to manage.

With a lacklustre online offering, a reduction in footfall due to lockdown measures and customers migrating to rival outlets, they were unable to ride out the storm.

It could be said that both chains were so big, they couldn’t conceivably survive. Both have a massive high street presence which comes with high costs, including increasing rents, business rates, maintenance and employee wages and both have high debt piles.

It has been suggested that JD Sports dropped its bid for Debenhams because of Arcadia’s collapse as Arcadia is the biggest concession operator in Debenhams and perhaps concluded that the less risky option was to stand by whilst Debenhams fell into administration with a view to buying a slimmed down version.

It is widely anticipated that Debenhams and Arcadia’s demise will have a ripple effect on suppliers and related businesses, leading to further company administrations.

This was posted in Bdaily's Members' News section by Anne Griffiths .