“The sun is clearly not shining on the British high street,” the chief economist of the U.K.’s top watchdog–the rather grand-sounding Confederation of British Industry (CBI)–gave a clear weather warning on the dismal summer retail figures.
But to look out the window, not only is the sun not shining, but the U.K.’s retail forecast is downright gloomy. Shops are closing, nothing is opening, and shutters remain down. “Ghost town” has reentered the British lexicon, as 2,500 businesses disappeared from Britain’s top 500 “high streets” last year, a massive 40% increase on 2017, according to PwC.
“We’re very much in a retail recession,” Richard Hyman of Richard Talks Retail tells Forbes, and although online retailers are more robust to the economic bad weather, the U.K.’s biggest players are suffering.
Last month billionaire retail tycoon Mike Ashley was forced to disclose a $65.9 million operating loss in his annual results, largely related to his takeover of House of Fraser, the ailing department store chain once dubbed the “Harrods of the high street.”
John Lewis, widely regarded as one of the best British shops, announced that profits for July 2018 sunk 99%. “It’s a massive, massive number.” Hyman says. “You know, when you see a company like John Lewis really struggling, God help everybody else who isn’t as good.”
Some of the biggest names are under serious threat and the much-feared “end” of the British high street is yet another bad news story, sitting alongside, disconnected from but equally demoralizing as Brexit.
For Green, today’s results make for a depressing read. The year that ended September 2018 saw turnover drop 4.5% to $2.2 billion, with losses now hitting $207 million, down from profits of $60 million last year. The crisis in Green’s empire even threatens Top Shop’s iconic Oxford Street store, which is saddled with a massive $381million mortgage. Nike will lease more space in the building but repayment of the mortgage has been delayed while the group seeks refinancing at a “reasonable rate of interest.”
However, like with Brexit, the worst is far from over. The “nation of shopkeepers”, as Napoleon Bonaparte is commonly claimed to have said of England, is having a moment. And at the stormy center of this headline-grabbing and melodramatic decline is one man. A man once celebrated as “king of the high street”, Sir Philip Green is Britain’s best-known keeper of shops. And he’s having an exceptionally bad year.
The story so far…
Philip Nigel Ross Green is a Londoner—more specifically, a suburbanite “Croydon boy” and a businessman very much in the so-called wheeler-dealer tradition. Despite attending Carmel College, the so-called Jewish Eton, as the son of middle-class property developer, Green knew at an early age that his career would follow a different path than his big banking, high-finance friends.
Green started off as an apprentice in a shoe warehouse, before setting up his own business importing and selling jeans. In 1985, when he was 23 years old, he acquired Jean Jeanie, a “struggling” fashion chain for $78,000. Just six months later he’d sold it on for over $3 million–and here the story of Green the deal maker truly begins.
Fast-forward to 2000, and Green (with help) bought department store BHS for £200 million, and followed that with the purchase in 2002 of Arcadia Group, which at the time included Topshop/Topman, Miss Selfridge, Burton, Dorothy Perkins, Evans and Wallis. Green’s retail empire was born, and at its head, a man who had risen from the warehouse floor to be one of the most important figures in U.K. retail, who commanded fear and respect as a deal maker.
In 2005 Green and his wife, Lady Tina Green made their money, banking a $2.1 billion (£1.2 billion) dividend from Arcadia–the biggest paycheck in British corporate history. By 2016, Forbes estimated the couple’s combined wealth to be $5.9 billion, putting the Greens at the front of the field of what this “nation of shopkeepers” could produce.
It was an era of success and excess: At his Top Shop fashion shows he arrived with Beyonce on one arm, supermodel Cara Delevingne on the other, and famously celebrated his 60th birthday with A-listers like Leonardo DiCaprio and live performances from Stevie Wonder and the Beach Boys.
Prime Minister Tony Blair celebrated Green’s Fashion Retail Academy, praising him as “the person who thought up the dream and dreamt the dream into reality.” In 2006 Blair’s Labor government awarded Green a knighthood for “services to retail.”
The warehouse apprentice from Croydon had truly arrived.
However, in 2019 Green’s luck seems to be running out with his empire crumbling and allegations of sexual misconduct, racism and bullying marring his reputation.
Since 2016, Philip & Cristina Green have seen their estimated wealth fall to $4.8 billion in 2018; $3.5 billion in at the start of 2019; and $2.5 billion by July that same year.
In three years the Greens have lost $3.38 billion. And after another year to forget, Philip and Cristina Green have seen their wealth fall by a billion dollars in 2019 alone as Arcadia, the backbone of their wealth, withers in a bleak period for bricks and mortar retailers.
That dream has faded. And the arrival of his holding group’s annual report today hinted that the worst is yet to come.
The biggest single driver of Green’s wealth loss comes with the decline of Arcadia, which is saddled with hundreds of stores representing stodgy brands abandoned by consumers in favor of the nimble and low-cost online fashion offerings.
A temporary stay of execution arrived in June this year after the landlords to his 570 stand-alone (U.K.) stores approved a deal to spare his empire from closure.
But the deal came at a cost. The two important stakeholders in this vote were the pension trustees (and regulator) and the landlords. On the pension side, Lady Green agreed to make cash contributions totalling £100 million to bolster the Group’s pension deficit repayments, which is feared to be over £700 million by British politicians. Arcadia also promised £75 million and security in property assets of up to the value of £210 million.
The Greens struck a bargain with their landlords, but also at great cost. Lady Green agreed to pick up the rent reduction shortfall of £9.5 million per year for three years, while Arcadia gave the landlords access to a £40 million compromised creditor fund, offered to pay for store repairs before they are handed back to landlords, and promised the landlords 20% of equity in the business, redeemable on the future sale of the group.
It was the price they needed to pay to prop up a once-mighty empire now falling toward worthlessness.
The jewel is Green’s crown has for years been Top Shop / Top Man group. At its peak, Top Shop was the quintessential one-stop-shop fashion outlet for U.K. teens and young adults. On May 1, 2007, “Moss-Mania” took hold of London as over 2,000 shoppers queued (many overnight) to get first dibs on the fashion icon’s debut collection.
These were the glory days. In 2007, Arcadia’s profits hit $490 million with total sales at the group rising by just over 5% to $3.81 billion.
And the good times continued—for a while, at least.
In 2012 Green sold a 25% stake in the Top Shop retail chain to the American private equity firm Leonard Green & Partners for an estimated $805 million. The deal was thought to precede Top Shop’s U.S. expansion, valuing Top Shop alone at over $3 billion, according to Green’s statement.
But a failure to adapt to the changing habits of shoppers was to cost the Greens. Natalie Berg, retail analyst at NBK Retail, told the BBC in June that Top Shop had fallen behind in popularity because of its half-hearted approach in embracing technology. Describing a recent partnership with ASOS, Berg says Arcadia is “clutching at straws now; this is something they should have done years ago.”
By April 2019 the rise of online alternatives like Boohoo and ASOS, and the perceived neglect of Green’s “dowdy” stores meant that Arcadia paid just $1 (76p) to buy Leonard Green’s 25% back–the clearest indicator yet that in just seven years the jewel in Green’s retail crown had dropped from $3 billion to worthlessness.
But sentiment aside, much of the Green’s actual wealth comes from the huge $2.1 billion (£1.2 billion) dividend they paid themselves during the glory days. Although this cash is ebbing away, the Greens are having to fight for its preservation in the face of battles over black-hole deficits in the firm’s pension pots.
The money comes from 2005, when Arcadia was a 2,000-outlet retail juggernaut, U.K. shoppers were cash rich and online shopping alternatives were years away. When the banks that had backed the Arcadia bid agreed to issue new loans, the Greens combined Arcadia’s cash flow, with refinancing and cost-cutting to generate the biggest dividend in British history no less.
And Green’s comments on the payment at the time is telling. He told the Guardian that the cash would be coming from a seven and a half year loan to Arcadia and described it as “senior debt” not “rinky-dinky funny money.” Adding that the dividend “leaves the business with plenty of opportunities to grow” and asserting that if he was a venture capitalist, he’d be “taking twice” the money.
It was a staggering payment. Especially considering Green’s retail empire was born in 2002 when he bought Arcadia for a reported $1.18 billion (£840 million January 2002) with just $12 million (£10 million) of that coming from the Green family themselves, the remaining billion coming from a consortium of banks.
Speaking to the FT in 2015, a boisterous Green described the deal as “a typical” venture capital deal, “but I’m the adventurer and the capitalist.” But just a year later in 2016 the “adventurer capitalist” would become the most vilified billionaire in Britain for his role in letting BHS, collapse, putting pensions for 19,000 British workers at risk.
And the Greens hardly have a reputation for prudence. Journalist Oliver Shah, in his book Damaged Goods: The Inside Story of Sir Philip Green, quotes a “friend” as saying of Cristina Green: “No one has ever worshiped at the temple of Mammon so assiduously. It was about conspicuous consumption, about spending money and making sure everyone knew you were spending it in excessive and vulgar ways.”
Resentment quickly gathered momentum. A Parliamentary report that year called Green the “unacceptable face of capitalism” and with it looking like he would be stripped of his knighthood following a symbolic parliamentary vote, Green agreed to pay about $450 million to cover the pension deficit in 2017.
Green’s Westminster nemesis, MP Frank Field, summed it up following an investigation into the sale of BHS: “Sir Philip Green stripped BHS bare,” he said, leaving it “for dead” with “contemptuous disregard for the pensioners.”The British press adopted the name “Sir Shifty”, and the bad times had truly begun. With the total pension deficit at Arcadia still undisclosed there remains the chance that this could well be one of the final outings for Sir Philip and Lady Christina Green on the Forbes Billionaires list.
Although the BHS pension pot dispute has been settled, a huge question mark remains over the size of Arcadia’s pension deficit. Green might once have reportedly dismissed his opponents in the House of Commons as “a bunch of wankers”, but they continue to hound him over Arcadia’s pension liabilities.
Addressing how the promise to top up the pension pots will be enforced, Charles Counsell, chief executive of The Pensions Regulator, told British MPs sitting on the Work and Pensions Committee that they could “go across jurisdictions” to “secure money.”
The warning shots have been fired and the end of the empire is nigh.
As his wealth shrinks and his businesses slide toward worthlessness, there is a genuine chance that the “nation of shopkeepers” will lose its most famous son from the Forbes list.
And in a strange way it’s a shame. Over a spate of hastily arranged calls with Green taken one morning, you can’t help but feel that behind the swearing and bravado he still has an entrepreneurial appetite for retail, and a real awareness of everything that’s wrong with the U.K. high street. With the government lost in a Brexit-warped labyrinth, the high street is failing and although no one seems sad to see Philip & Cristina Green lose a few billion, British retail could do with a noisy bully to make itself heard. One idea circulating is for rents and business rates to float based on market conditions. Empty units would certainly find occupants. Life might well be restored. Unprofitable shops would surely close. Better ones might open. But again, Green would be the chief beneficiary of this rent reduction.
Green has stumbled before only to recover to new heights and the arch-deal-maker still has a few tricks up his sleeve. Freshly inked agreements to sell clothes via online juggernauts Very, Next, ASOS, Zalando and concessions with Nordstrom could breath new life into Arcadia and might give Green the time to pull together an 11th-hour deal to repair his business, fortune and reputation.