Arcadia jettisons high-street names in desperate bid to restore fortunes

High rents and tough competition from discounters have wounded the retail clothing chain
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The Independent Online

Arcadia, The Burton Menswear and Dorothy Perkins retailer, announced one of the high street's biggest shake-ups yesterday with plans to close a quarter of its shops, cut 3,500 jobs and dramatically reduce its menswear operations.

Arcadia, Britain's second largest clothing retailer after Marks & Spencer, is closing 400 stores, with the loss-making Principles for Men and Richards chains closing down completely. Burton and Top Man will also be scaled back, as the company concentrates more on women's clothing. However, some of the women's chains, such as Principles and Miss Selfridge, will also see store closures.

The restructuring is part of a desperate plan to reduce overheads in the face of weak clothing sales, increasing competition from discount operators, and sharp falls in high-street clothing prices.

The shake-up, codenamed BrandMax, will cost £90m but result in annual cost savings of £160m. It accompanied half-year results that showed the group plunged £8m into the red last year compared with a £30m profit in 1998. After exceptional charges of £52m, losses reached £60m. The company also abandoned the interim dividend.

To fund the restructuring, Arcadia has secured a £210m extension of its credit facilities from a consortium of 13 banks. The package has been secured against the value of the group's prime property asset, the corner site on Oxford Circus in London.

Arcadia shares, which stood at over 500p two years ago, fell 1.5p to 48.5p. This values the group at just £92m.

Justifying the shake-up, John Hoerner, chief executive, said: "The market moved sharply against us and we needed a dramatic response."

But City analysts were uncertain the overhaul had gone far enough. One said: "More of its brands will falter so there will be more closures. It is difficult to see Arcadia still being around in five years' time."

Brian Rayner, retail analyst at Peel Hunt, said Arcadia would continue to be hampered by its high rents: " It is difficult to see them making much progress this year or next. You get a sense of déjà vu with this company. We have been here before."

Arcadia's chairman, Adam Broadbent, said the management team, led by Mr Hoerner, continued to have the support of shareholders. Mr Hoerner said he had "never considered resigning", adding, "I intend to make this company successful."

Institutional investors indicated frustration but said they had no plans to push for management changes. One senior fund manager said: "If you hold shares in this one, you're in it for the long haul."

But some industry experts said Mr Hoerner was lucky to survive. "I don't know how he gets away with it," one said.

The whole clothing sector has been struggling in the past year but Arcadia has suffered more than most. Over-capacity was a major problem with 5.5 per cent more retail space being added to the sector last year, just as clothing sales fell. With supply out-stripping demand and competition increasing from discounters like Matalan and the major supermarkets, prices have plunged. Arcadia said discounted clothing accounted for more than a third of all clothing sales last year as stores slashed prices to clear excess stock. Clothing prices fell 15 per cent, it said.

Arcadia has been in a weaker position than many of its rivals for two reasons. Its stores are weighed down by high rents following the dash for growth in the late-1980s when the business was part of the Burton Group. Secondly, Arcadia is perceived to have too many stores operating under too many formats. Some analysts feel Arcadia compounded this problem last summer when it paid retail entrepreneur Philip Green £150m for the former womenswear operations of Sears. The deal added the Wallis, Warehouse, Miss Selfridge, Evans and Richards stores to Arcadia's already fragmented portfolio. Mr Hoerner yesterday refused to blame the deal for the group's problems. "We believe we paid a fair price for the business at the time. This may sound surprising but the Sears acquisition is looking better and better." He said the deal had enabled Arcadia to focus more on womenswear which will account for almost 80 per cent of group sales. The 99 Principles for Men stores will close over the next year.

Some industry observers suggest Arcadia must be vulnerable to a bid: "The whole thing has been a complete cock-up and people must be looking at it," one said. Another pointed out that a bid for Arcadia would be "small change" to Mr Green who has just agreed to pay £200m for Bhs. He could buy Arcadia for less than he received for the Sears stores eight months ago.

Others say Arcadia could recover. Clive Vaughan, of Retail Intelligence, said: "They have some good businesses such as Evan, Dorothy Perkins and Hawkshead and John Hoerner is a good retailer."

Arcadia pointed to an improvement in trading as grounds for optimism. In the nine weeks to 18 March retail sales (excluding new brands) were up by 8.1 per cent with margins down by 1.3 percentage points.

But it looks like a long, long haul.

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