Can Topshop and Arcadia Group Survive Misconduct Allegations and Massive Financial Loss?

Too many stores and too little focus on digital increase retailer's woes

topshop storefront
Topshop is the longtime jewel in Arcadia's crown. Getty Images
Headshot of Diana Pearl

In the world of U.K. retail, few names are as prominent as Arcadia Group, the parent company of Topshop, Dorothy Perkins, Miss Selfridge and Wallis, among others.

Arcadia’s apparel brands have long been mainstays of the British “high street,” a descriptor for the shops that populate U.K. towns’ main shopping drags, roughly the equivalent of American mall stores (think retailers that are ubiquitous, are affordable and cater to the masses).

Over the past two decades, Arcadia, which owns eight brands and operates 2,000 stores and has over 22,000 employees worldwide, has been one of the strongest players in the U.K. retail market. In 2011, it took in 2.68 billion pounds (about $3.27 billion) in sales, according to Statista, but that number has been steadily declining since 2013. In 2018, sales were about $2.12 billion.

Crowds outside of Topshop in London ahead of a Kate Moss appearance
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“[Arcadia] used to be almost the shining light of apparel on the high street a decade or so ago,” said Richard Lim, chief executive of independent economics research consultancy Retail Economics.

And Topshop’s flagship store in London’s Oxford Circus was the pinnacle of that, gaining media attention for the store at home and overseas, said Andrew Busby, founder and CEO of Retail Reflections.

But over the past year, Arcadia has been plagued with problems. For starters, its chairman was accused of sexual, racial and physical misconduct and abuse by multiple people who had been employed by Arcadia. According to the Telegraph, which broke the news, Philip Green allegedly groped a female employee, put another employee in a “headlock” and told a black employee his “problem” was that he was “throwing spears in the jungle.” Green allegedly paid off employees who complained with as much as $1 million.

Green initially went unidentified until a member of the House of Lords named him as the culprit after news of allegations against a prominent business leader broke. (Green had taken out an injunction against the Telegraph to prevent his name being revealed.) The news led to calls for Green to be stripped of his knighthood. Green has denied the claims of “unlawful sexual or racist behavior,” according to The Guardian.

A spokesperson for Arcadia said the company “won’t be commenting on personal news regarding Philip Green.”

A Miss Selfridge store in Manchester, England
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But it’s not just Green’s reputation that has suffered.

In September, Arcadia announced an approximately $616 million loss solely for its Topshop and Topman chains, its most high-profile brands, according to the BBC. It’s a giant number, particularly when compared with Topshop’s loss in 2017—a mere $19 million. This news came after Arcadia filed for Chapter 15 bankruptcy in the U.S. and announced the closure of all 11 of Topshop’s U.S. stores.

Arcadia’s also been in the headlines for its handling of the company’s pension funds, and Topshop lost a high-profile partnership with Beyoncé’s athleisure line Ivy Park, which relaunched with Adidas in April.

Arcadia suffered its own roughly $167.9 million loss, too, according to Retail Gazette., and there’s now talk that the company might sell off some of its other brands to focus on Topshop, the longtime jewel in its crown.

It’s a stunning fall from grace for one of the most high-profile retail conglomerates in the U.K. “The U.K. market is changing at such a phenomenal pace that they’ve just been left behind,” Lim said.

For its part, the company feels confident about its future, according to a strategic report on the past year that an Arcadia spokesperson shared with Adweek.

“After coming through a challenging year, we are now very clear on our strategic direction,” the report reads. “Our Business and Recovery plan is focused on product, service, stores and maximizing the potential of all partners and channels that we are operating through.”

Walking into the Topshop location on Brompton Road in London’s Knightsbridge neighborhood, you might have an inkling that the brand is ramping up efforts to move product. Immediately to the side of the entrance, front and center in the store, are racks and racks of sale items priced as low as 15-30 pounds ($18-$36). The deals seem to be having some effect. Just an hour before the store closed on a Thursday night, there were still customers perusing the racks, particularly those sale racks.

Arcadia storefronts on the streets in London
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But the real thorn in Arcadia’s side, according to Richard Hyman, a U.K.-based retail expert and the founder of Richard Talks Retail, are the other brands in Arcadia’s portfolio—including Dorothy Perkins, Wallis, Outfit and Miss Selfridge, all of which are women’s apparel retailers and high-street mainstays without much of a presence in the U.S.—which he said “peaked before Philip Green even bought them.”

Arcadia’s approach to maintaining these brands has contributed to the company’s decline, Busby said. Arcadia kept using the same tricks, hoping those that were once successful would play well again, even if the audience was different.

Even with Topshop, there’s been a failure to evolve. Busby pointed to the store’s use of Kate Moss as a spokesmodel for the brand. When Moss first appeared in Topshop ads and did a capsule collection for the brand in the early 2000s, she was at the height of her career. It was a major get for Topshop and added to it being “in the public eye for good reasons.” And when the products from that initial collaboration sold out, Busby said, “it did display, at that time, the level of demand and attention that the brand had.”

Philip Green and Kate Moss at Topshop's London Fashion Week show in 2017
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But when Moss reprised those roles in 2014, she was less of a draw for the younger demographic that Topshop caters to. “She was old enough to be the mother of most of their demographic,” Busby said. It’s a move, he said, that speaks to how the brand has lost touch with its target customer.

“Arcadia didn’t make the right investments for the future,” he said. “I liken it to having an asset, whether it be a car or a house or, in this case, a retail business. You have to keep investing in it. You can’t just suck it dry of everything and expect it to carry on as it always has.”

Lim pointed specifically to the investments Arcadia failed to make in digital: building a strong ecommerce platform, using data to create a better customer experience, prioritizing its brands’ growth on social media and working with influencers to drive traffic back to their sites. Making the lack of innovation in digital even more pronounced was the emergence and rapid growth of U.K.-based ecommerce giants like Asos and Boohoo.

But in the face of such competition, the company is embracing an “if you can’t beat ’em, join ’em” mentality. Topshop announced in June that it would start selling its products on Asos as part of a renewed $73.25 million focus on digital, according to Retail Week. And according to the strategic report, the company is also growing its relationships with retailers Very and Next to sell all of Arcadia brands, not just the limited number that had previously been available.

And like the rest of the high street, which just suffered its worst September in eight years, according to BDO, one of the biggest challenges Arcadia is facing is the mountain of store leases it’s financially responsible for.

“They’ve just got too many stores,” Lim said. “They have to deal with inflexible lease structures, with only upward rent reviews, and then all of the costs associated with running those stores as well. All of that against the backdrop of shifting consumer behavior has left them with a business model that isn’t essentially fit for purpose in today’s retail environment.”

Arcadia, for its part, is renewing its focus on “investing in key stores within our more focused real estate to ensure that we are able to continue to give our customers an exciting shopping experience experiencing on High Street,” according to the strategic report.

A Wallis store, one of Arcadia's brands, advertises a closing sale
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Arcadia’s problems aren’t unique.

The problems plaguing retailers are nothing new. On both sides of the Atlantic, retailers have been forced to file for bankruptcy, shutter stores or close altogether in the face of keeping up with the industry’s demands today.

But Arcadia has two significant factors that differentiate it from other retail businesses—one positive, one undoubtedly negative.

Green himself is the latter. Since the allegations surfaced against him, the question of Green’s role in the company looms when it comes to Arcadia’s future. But even with the massive damage that’s been done to his reputation—even former Prime Minister Theresa May said that his knighthood should be “reviewed”—his exit appears unlikely.

“It is totally inconceivable that he would step down,” Hyman said. “There’s no way that he’s going to say, ‘Look. I’ve decided from now on I’m going to leave [Arcadia Group CEO Ian] Grabiner in charge, and I’m just going to spend the rest of the time on my yacht.'”

And Green’s reluctance to give up his chairman post could mean trouble for Arcadia’s more positive differentiator and likely its best bet for survival: Topshop. Despite its losses, it’s still Arcadia’s best-known brand, has long been its bright spot and notably is the only Arcadia brand that’s had a major push in the U.S.

Topshop's first New York City location, ahead of its opening
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“Topshop is a business that is still pretty good and can be turned around,” Hyman said.

One move that will likely help in that direction: Its decision to shutter its U.S. stores—Topshop will still be sold at Nordstrom, its exclusive American retail partner, and the strategic report says it will continue to build on that “very strong partnership.”

Hyman said it’s a rare U.K. apparel brand that can truly succeed at scale in the U.S. and that rushing expansion can often end like this.

“It’s very seductive to go to America,” Hyman said. “It’s a much, much bigger market than the market is here. They don’t do enough local research in order to make the necessary adjustments for what is a very different market.”

Evidence of Topshop’s failure to make a real splash with American consumers was on display at the Knightsbridge store this week, where American customer Katie Nickerson, 26, admitted to Adweek that she wasn’t very familiar with the brand, as it had never made a significant splash stateside.

Rather than citing Topshop itself as a draw, she said, “I needed a coat, and it was cheaper than the places nearby.”

Beyond international recognition, further change is needed if Arcadia wants to survive, even on its home turf. And if Green is going to stay on, then Lim believes he needs to take charge.

“He has to be behind the turnaround of the company; he really has to be driving that change,” Lim said. “If not, then it’s a case of trying to find a buyer for the company.”

However, Hyman believes Green’s failings may be too much for consumers to bear. “What happened to his reputation has impacted the business’s reputation,” Hyman said. He feels that, while there’s potential for a turnaround, it would be challenging and would require both a new leadership and a serious influx of cash.

Sir Philip Green, Arcadia Group's chairman
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Whether Green remains in charge or not, drastic changes to Arcadia’s internal culture and the perception around it are critical.

“We do care more about the way that an organization is run, the culture of a company and how they treat their staff, because, if they treat their staff shabbily, they’re not exactly going to be treating their customers that well,” Busby said.

But even with cultural change, Hyman said, Arcadia outside of Topshop may well be a lost cause. “The rest of it? We may see some of those labels live on, but not as we’ve known them in the past,” he said. “It’s really a stock-clearance job.”

And with more options than ever, keeping up is only going to be harder. Perhaps an omen of that very phenomenon was the sight of a woman leaving the Topshop in Knightsbridge, carrying one small Topshop bag—and two large bags from across-the-street competitor Zara.

@dianapearl_ Diana is the deputy brands editor at Adweek and managing editor of Brandweek.