Yahoo Finance Arcadia fiasco shows retailers need new relationships with landlords
Even if landlords reject the rescue package for Topshop-owner Arcadia on Wednesday, they cannot pretend that the reality of the retail world hasn’t changed, a former top retail CEO has warned.
Though Ian Shepherd called “drastic and risky” the company voluntary agreement processes that ailing retailers use to settle their debts, he said that their prevalence points to the need for an altogether new relationship between retailers and landlords.
“In an ideal world, the company would not have entered into the lease and other commitments that it is trying to shed in the first place,” Shepherd, who previously led gaming store behemoth Game, told Yahoo Finance UK.
“But the reality is that, as businesses expand, they need to take on new commitments, and in commercial property in particular there has been little choice but to take on long and inflexible leases,” he said.
“In rejecting the company voluntary agreement mechanism, what landlords can't reject is the reality that the retail world has changed,” he warned.
“There are retail chains out there that need to have a very different relationship with their landlords.”
Sir Philip Green is hoping that creditors will approve seven company voluntary agreements for Arcadia in a second vote on Wednesday. But the company’s biggest landlord, Intu (INTU.L), has indicated that it will oppose the plan.
Arcadia has repeatedly warned that it is “highly likely” it will be forced to go into administration if its plan is not approved, something that could happen as soon as Wednesday evening.
That would put up to 18,000 jobs at risk at the likes of Topshop, Dorothy Perkins, Miss Selfridge, and Burton.
Similar company voluntary agreements have been used to stave off the collapse of other retailers, like Debenhams and House of Fraser.
“Company voluntary agreements are not great. They’re worst of all for people who work in shops, who suddenly have their jobs put at risk in a very public way,” Shepherd said.
“But we shouldn't miss that they’re pointing to the need for something to change — and landlords need to explore how they can work with retailers in ways that are more flexible,” he said.
Shepherd, who was also COO of Odeon (ODE.F), Europe’s largest cinema business, is author of the recently published book Reinventing Retail.
