Investing.com - The COVID-19 crisis in the UK retail sector is nearing a peak, and although who lost it has long been clear. But who will be the biggest winner remains far from clear..
No amount of government aid, no pay schemes, rent adjustments, and other financial miracles have prevented the inevitable for Arcadia, the empire of British retail entrepreneur Philip Green..
The group, which owns the chains Topshop, Topman, Miss Selfridge and Burton, represent Britain's even duller and cheaper main street, is on the brink of collapse. A slew of reports over the weekend showed Arcadia will appoint administrators this week, almost certainly a prelude to losing thousands of jobs and closing hundreds of stores..
This comes at a time when another slow-paced retailer, Debenhams, is also on the brink of extinction if it disagrees with the benefits of JD and Sports Fashion..
The social and political costs can be enormous: Arcadia and Debenhams employ around 25,000 people across the UK, and few have hopes of staying in the job. In addition, Arcadia has 110,000 people enrolled in a corporate retirement plan, which reportedly has a deficit of around £ 350m ($ 470m). The company is privately owned and does not disclose real numbers.
Investors in the stock market have two questions: who will "fatten at the expense of the carcasses" of the two businesses, and whether the remains will contaminate others on the main street from among those that are still afloat.
As for the first question, there are already signs that predators - or rather scavengers - are claiming the first prey. Frasers, which includes department store House of Fraser and Sports Direct, confirmed on Monday that it had offered Arcadia a £ 50m ($ 65m) “lifebuoy”, but did not provide details of the terms it attached..
Given the past troubles between Greene and Frasers owner Mike Ashley, it's possible that an even more generous offer will be turned down on grounds of pride (or anger). Ashley has a double incentive, however. Not only can he hope to replicate previous successes in dealing with distressed assets, but he must defend the value of his existing group of brands. House of Fraser, in particular, needs social status to protect its margins. Every boarded up window next door robs him of that.
The market has already decided that the collapse of Debenhams and Arcadia is bad news for Frasers: its shares have lost more than 6% in the last week, as the crisis intensified. At the same time, the collapse of Arcadia strengthened JD Sports' bargaining power with Debenhams. Its shares are up 6% on Monday in anticipation of a tougher deal..
Shares in ABF, which owns Primark, also rose another 0.9% to 6.4% on the week amid the prospect of closing several excess capacity. But the other two, larger leaders that rose were online rivals ASOS and Boohoo, which rose 3.9% and 4.1%, respectively. For the latter, which raised investor capital in the summer to prepare for the "bargain hunt", the intriguing question is whether Arcadia's advantageous position in central London will tempt it into a solid market presence. If the price is close enough to zero, then its answer may well be positive.
By Jeffrey Smith
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