Sir Philip Green's Arcadia Group has announced that it is to close 250 stores after it reported a 40% slump in profits. The group, which owns brands including BHS, Topshop, Dorothy Perkins and Miss Selfridge, has been hit by the retail slump caused by stagnant incomes, high inflation and weak consumer sentiment.
The company made £297m in the current financial year, down from £383m the previous year. Total sales were down by 3.4%. Speaking to the BBC, Green said that he expected between 250-260 stores when their leases expire over the next three years, and cited the "challenging conditions" that the group faces.
The group employs more than 44,000 staff across a portfolio of 2,500 stores.
Retail sales showed a better-than-expected increase in October, rising 0.6%, but much of the boost was down to discounting, analysts said. It was a rare bright spot in a summer that has seen consumer spending held back by slow growth in wages and the economy. Consumers have cut back on discretionary spending, with electrical retailers in particular suffering. High street clothes sales have also been undermined by an unseasonably hot autumn, which delayed purchases of winter clothing.
"When you're talking about Arcadia's success, you're really only talking about TopShop, TopMan and Miss Selfridge," Isabel Cavill, a senior analyst at Planet Retail, said. "Those are good brands, they've put a lot of investment into them in terms of marketing, getting the right products. But if you look at its other brands, which are not performing as well, they don't get the same marketing investment. They're targeted at younger shoppers but they're priced in the mid-market and young shoppers don't have the money to spend on mid-market clothes in this economic environment."
Younger consumers are trading down to lower-priced stores, such as Primark and H&M, Cavill said, which has hit brands like Dorothy Perkins and River Island, which are struggling to position themselves. Family-focused mid-market players, such as Next and Debenhams, have proved quite resilient, in part due to their ability to adapt to rising input costs.
"Everyone's profits have been hit by high input costs and a difficult market where everyone has to invest in price. So a lot of retailers are either just putting up the price anyway, like Next, or they are continuing to invest in price, like H&M and Primark and driving volume sales," she said.
"[Arcadia] have been closing a lot of stores anyway, like Dorothy Perkins. The announcement of store closures is nothing new. [Green] has been reviewing his store portfolio for a while as a way of offsetting high rents and putting pressure on landlords… He's been closing stores in prime locations. The Dorothy Perkins in Oxford Street closed earlier this year, and I think that was indicative of the performance of the brand."
There are also persistent rumours that Green will look to sell the underperforming BHS chain.