Topshop collapse: What went wrong for Sir Philip Green's Arcadia retail empire?

A trip to Topshop on Oxford Street was once a part of the tourist experience along with London Bridge and Buckingham Palace.

For generations of teens up and down the UK, Topshop was the retail destination for cool fashion where you could emulate those original supermodels without needing their super income.

Now, after the collapse of the Arcadia Group, those Topshop visits will become nostalgic memories like buying vinyl records and using rotary dial phones.

Grandchildren will marvel at how people used to queue around the block to get the latest Kate Moss creation in person and rummage through clothes rails for our size

So what went wrong?

According to former Topshop boss Jane Shepherdson CBE, the loss of Topshop and Arcadia Group’s other brands, was inevitable.

As with most stories of brands going bust, there was no one big event, but rather a series of tremors that saw the empire crumble.

Topshop was born in 1964 as a section of Peter Robinson, a long-gone department store chain. By 1992 it had joined up with Topman to open the Oxford Street flagship store, claiming it to be the largest fashion store in the world.

By the time the world toasted the new millennium, Arcadia Group owned a sizable number of recognised fashion brands to appeal to as wide a market as possible.

Within ten years Topshop would open stores across the pond, while protesters targeted Oxford Street accusing Sir Phillip Green of avoiding his tax obligations.

This was perhaps the first crack in Arcadia Group’s foundations.

By 2019 Topshop and Topman saw their full-year pre-tax losses build to £505.1 million, a freefall from £3.9 million in 2017. Sales were dropping and costs were rising.

Let’s take a look at the other cracks that led to Topshop’s demise.

Credibility

Sir Phillip Green once had many friends in high places but his reputation began to take hit after hit.

First, there were questions over whether he, as the owner of a British retail empire, was contributing enough tax to the government.

Then there was the pension scandal that followed the collapse of the high street stalwart BHS. When MPs voted to remove Sir Phillip’s knighthood, he chipped in and managed to keep the title.

Next, in 2018 and the charismatic businessman became a feature of the #metoo movement with several allegations which saw former friends begin to distance themselves from him.

More recently, Green and Arcadia Group were heavily criticized for cancelling large orders because of the pandemic and penalizing the very low paid overseas garment workers who would have relied on those orders.

Sir Phillip Green’s reputation as a trusted, smart and tenacious business leader foundered. And in business, reputation is everything.

Crippling costs

If sales are stalling, or even increasing, rising costs will bite profits hard. If sales are dropping then it’s like trying to hold back the sea with your bare hands.

Arcadia Group had to face rising overseas manufacturing costs, reduced profits due to currency exchanges following Brexit, the impact of UK policy increasing the minimum wage and the high business rates that burdened bricks and mortar retailers.

These problems were not unique to Arcadia Group but the huge retail empire was not immune either.

Competition

Arcadia Group was on the back foot when it came to the changing needs of its customers too.

The latest generation of buyers no longer viewed Topshop stores as hallowed fashion grounds that drew crowds on Saturday afternoons. All around them young upstarts like Primark popped up offering cheap, frequently changing ranges.

More significantly, new fashion chains like Asos and Boohoo offered all that at the click of a button. Topshop's customer base had better things to do than rifle through racks of clothes.

Now they could see dresses and tops from every angle without leaving the sofa.

Had Green invested in the emerging online market, Topshop could have been top of the game there too. As it was, Arcadia Group never really bothered.

Rather than meeting potential customers where they were, they sat in their stores waiting for them to come. Only people stopped coming.

Beyond that, was the pace at which Topshop’s new rivals could respond to the catwalk.

Seen on the runway one week, the look would be available to buy the next, under-cutting Topshop by 30% as they did so.

Customers now wanted cheap, bang-on-trend fashion and Topshop weren’t delivering.

Covid

The closure of businesses as the UK attempted to contain the pandemic may seem like the final straw but it probably just accelerated the inevitable end to the Topshop story.

If online fashion retailers were a threat before, they became destroyers now.

Millions of shoppers who may have avoided buying online pre-pandemic were forced to embrace it with non-essential stores closed for what amounted to a year.

And Topshop’s younger demographic were already living their lives online.

They were seeing adverts and building relationships with brands through social media. Online retailers were emailing and texting their customer base with offers and making personal connections. Yet Topshop was still decorating hoardings and train station billboards.

Culture Shock

All these forces created the perfect storm, that only the most visionary and revolutionary CEO could hope to navigate and reach safe shores.

But what perhaps no business analyst could have foreseen is the cultural change that went along with the retail revolution.

Business ethics and values started to matter.

Consumers began to care about the people behind the brands and if they don’t like them, they’ll vote with their (digital) feet.

If anyone could have saved Topshop, it wasn’t going to be Sir Phillip Green.

Even if consumers could overlook the controversial sale of BHS for £1 and the massive pension deficit when the business went bankrupt the following year, Green has had to defend allegations of bullying, racism and sexism all of which he denies.

Mud sticks and Topshop is synonymous with the Arcadia Group CEO. If consumers needed another reason to spend their money elsewhere, they got one.

The end of Topshop’s story is similar to the one where David killed Goliath, except in this story, David became the giant and consumed Goliath.

Asos has bought the name but not the stores as part of a £330m deal while the future of the flagship store on Oxford Street hangs in the balance. Asos don’t do bricks and mortar but say they’re open to suggestions.

Whatever the destiny of Oxford Street’s former darling, it’s certainly the end of an era that many will remember fondly, but probably not Sir Phillip Green.