The demise of Philip Green’s empire is a lesson: when a billionaire buys a yacht, expect business to go downhill

Time sprawled on deck is time not running the business. The collapse of Arcadia is a miserable tale but the warning signs were all there, writes Hamish McRae

There is something depressing about the way in which so many of the very rich live in places where they don’t pay much tax (Reuters)

There are at least six stories in the collapse of Arcadia, the core of the retail empire run by Sir Philip Green and owned by his wife Tina, who is resident in Monaco and who in 2005 received the then largest-ever dividend of £1.2bn.

While we don’t know the final outcome of a miserable tale, buyers may well pick up some of the Arcadia brands, which include Topshop, Miss Selfridge, Wallis Evans, Dorothy Perkins and Burton. 

But we know this. First, this is a story about bombast. Never believe corporate hype. “We’re a global force in fashion. Dynamic and diverse, our team is the best in the business,” boasts the company’s website. It is a decent rule of thumb that when any company preens itself about something, it is compensating for a weakness. So if, for example, they say they care about values, it probably means they have a reputation for squeezing their suppliers. In this instance the giveaway is “dynamic and diverse”. If Arcadia really was dynamic, it would have been ahead of the curve into online, and yet it failed to diversify away from the high street.

Second, this is a story about the future of the high street. Retailing has not collapsed, for sales are up nearly six per cent year-on-year, but the high street has. We have had about eight years of structural change in eight months, with online rising from 20 per cent of retail sales pre-Covid to 28 per cent now. High streets were already being transformed by bank branches being switched to other uses, including restaurants and flats, and now retailing is giving a new impetus to that. Shops will close, but the buildings are still there and people will find new uses for them. For example, there are already small specialist food shops starting to open, and the dreary sameness of British high streets will be replaced by increased diversity. The more sites that become vacant, the faster the transformation.  

Third, this is a story about pensions. One of the really troubling aspects of this tale will be what happens to employee pensions. Companies will continue to go belly-up, and in a sensible world pensions would be entirely separate from company finances. But they are not. There has been a pension deficit on Arcadia’s books for some time and last year Frank Field MP, now Lord Field, called on Sir Philip to cover it. It cannot be right that business owners can take vast amounts out of their firms yet leave pensioners losing their pension savings. Yes, there is a compensation scheme, but that is a patch on a flawed system. We need to think how the system should be changed.

Four, there is the question of dividends and debt. By rights, company boards determine how much of a dividend can safely be paid out given the performance of the business. Sometimes the authorities intervene, as has happened this year with the government banning bank dividends on the grounds they needed to conserve cash in case too many of their customers go bust. I feel uncomfortable about this, partly because pension funds need dividends to pay out pensions, but also because it is the legal responsibility of a board to make that call and directors will know more about their business than some politician or civil servant. However, it cannot be right to load a business with debt, even at very low interest rates, and take out all the cash. What in the short term seems clever, in the long term can be catastrophic. So we need to change the incentives, though quite how that should be done is extremely complex.

Five, tax havens. There is something depressing about the way in which so many of the very rich live in places where they don’t pay much tax. This is not simply about tycoons – it is about actors, sports personalities, wealthy retirees and so on. No decent country can stop its people leaving to live somewhere else, and if a country chooses to create tax incentives to attract wealthy foreigners there is nothing to be done about that. Many countries do this, including Italy and Portugal, so this is not just about Monaco or islands in the Caribbean. But this is an aspect of democratic societies that is profoundly depressing, for it undermines democracy itself.  

Finally, yachts. They are a great sell-signal. If a business leader spends millions on a yacht, that means they will be spending time on it, and time sprawled on deck is time not running the business. Everyone deserves holidays and everyone who has done well is entitled to spend their money any legal way they like. Arcadia is a private business so we can’t sell the shares. But next time you see a story about a billionaire buying a yacht, expect their business to start heading down in the years ahead.