The Sunday papers this weekend were full of stories about the impending end of another retail giant. Arcadia, which owns well-known brands like Topshop, Topman, Burton and Dorothy Perkins, will enter administration this week if not today.
In truth, Arcadia has long been on its deathbed and the pandemic has just hastened the sad end - as we all know well by now, underlying issues are a big contributory factor with deaths caused by Covid-19. Arcadia is just the most recent in a long line of high street retailers that have headed to the great shopping mall in the sky – Laura Ashley, Debenhams, Monsoon, TM Lewin, New Look, Jaeger and Peacocks – and that’s just in the last year.
The pandemic may have put the final nails in their respective coffins, but most of these businesses have been struggling for a long time due largely to changing shopping trends, chief among them the move to online. The owner of Arcadia, Sir Philip Green, is a classic example of an ‘old school’ businessman who failed to respond to these changes, in fact he seems to have made few attempts to even understand them.
Sir Phillip apparently reveled in clinging on to the 'good old' ways which, to be fair, had been good to him and brought enormous wealth which he lavished on an extravagant, star-studded, lifestyle mostly seemingly spent on large yachts in Monaco. In the many paparazzi pictures of him aboard those yachts, he’s generally shown on deck in a shrink-wrapped tee shirt around his rotund midriff with baggy board shorts, a phone seemingly glued to his perma-tanned face, ringlets of gelled grey hair spilling down the back of his neck to compensate for that now missing on top. Apparently, until very recently, that phone was always an old Nokia 6310 ‘brick phone’ because he hated the smartphone culture.
“..He’s a Luddite. His dislike of technology is deep-seated and visceral. He almost revels in it. Green is the consummate analogue man in a digital world.” Oliver Shah, The Sunday Times.
It’s symptomatic of an attitude that has informed his decision making over the years and allowed other ‘fast fashion’ but digital native businesses to sneak up on the rails, then blast right past him. You could argue that, on one hand, these new entrants aren’t weighed down by the high cost leases of Green’s physical stores, but on the other hand they had none of the huge amounts of brand equity of Arcadia's brands, or its customer base.
Either way, Green failed to invest in online and apparently even passed up opportunities to buy Asos for a relative song in their early days. Over the years he occasionally tried to catch up with online, in 2012 for example he recruited Justin Cooke, a digital high flier from Burberry. Cooke left within a year frustrated that Green didn’t back him up with promised investment. Maybe this shouldn’t come as too much of a surprise given that Green refused to use a PC and even had his PA print out all his emails.
There’s a story from the late 2000s that encapsulates Green’s combination of ignorance and arrogance: Apparently the Asos owner Nick Robertson was drinking with senior staff at an industry event when Green sat and joined them, uninvited. He pulled out a large wad of cash and waved it at them like Harry Enfield's Loadsamoney plasterer: “Right, who wants to come and work for me?” He asked. One of the Asos people cleared his throat. “Philip, we used to work for you,” he said.
The ultimate irony is that the digital newbies he despised and derided will now probably feast on the bones of his fallen empire. Topshop is likely to be bought out of administration by Boohoo and Mike Ashley, the uncontested inheritor of Green’s ‘king of the high street’ crown, is always sniffing around the bargain bin of troubled retailers. Given Green’s reputation as a bully, past allegations of sexual assault and an overtly extravagant lifestyle funded by the billions in dividends he paid himself tax-free via offshore routes, I doubt few will shed many tears. Whether he does the decent thing by topping up his employees’ pension deficit remains to be seen. He did put £363M back into BHS's pension pot after it went bust but only following pursuit by the Pensions Regulator and a demeaning session in front of a parliamentary committee. He’s made his money of course and doesn’t seem to be the kind of man to be especially bothered by things like negative press, but removing his knighthood might.
I don’t know whether it was positioned deliberately, but my Sunday paper featured an article about Matt Moulding, The Hut Group’s CEO, directly alongside the news of Arcadia’s collapse. The Hut Group is one of the new breed of online retailers whose enormous success has been encapsulated in a recent flotation that sees the business now valued at over £5B earning Mr Moulding a reported £850M plus payout. This incredible value has been built up in just over 15 years, obviously a journey which started well before the pandemic struck, but Covid-19 has undoubtedly boosted the fortunes of online businesses especially big tech’s big 4 of Facebook, Amazon, Google and Apple. FAGA, as they're collectively referred to, have all added billions of dollars to their market valuations. I’m no conspiracy theorist though, and it stands to reason that we’re all going online a lot more when locked down with little choice but to spend more time at our screens.
“The obvious beneficiary from the lockdown (the closure of retail and a fear of leaving the house) is—surprise!—the company that’s in the business of bringing retail to your house. And though it gets less general media attention, Amazon is also a huge beneficiary of people spending more time online, thanks to Amazon’s $40 billion Amazon Web Services division.” Scott Galloway, Post Corona: From Crisis to Opportunity.
The pandemic is almost tailor made for Amazon as the high street competition has been forced to shut down with everyone made to stay at home. Then consumers get furlough cash with nothing to spend it on, having probably cancelled holidays and now not even allowed to go to the pub, so may as well spend it online. Then there's DIY and gardening of course, but you probably need to order stuff to do that anyway. If our house is anything to go by, there’s half a dozen deliveries every day.
Apple too has seen its share price climbing steadily during the pandemic from a low of $57 in March, then rising to over $130 in early September before leveling off to its current $1.15 share price. A few years ago the pandemic might have put Apple’s status as a member of the big four at risk because it’s a manufacturer of expensive tech with its own physical stores, unlike the other three. But Apple has moved away from pure hardware and invested heavily in recurring revenue subscription services such as iCloud, Apple Music, Apple TV+, Apple Fitness and Arcade. Apple has re-positioned itself as a software business and, whilst this was a strategic decision made well before Covid, it’s paid off handsomely as, again, we’re spending more time on our phones listening to music or watching TV.
Facebook and Google are essentially advertising businesses, online ones of course, so their audiences have become bigger by being trapped at home. The pandemic has again put the final nails into the coffins of traditional media businesses although there’s a reasonable argument that it’s just sped up the process. This despite a concerted campaign in July by some big brands who boycotted Facebook in protest at its promotion of hate speech and misinformation. However, as Zuckerberg predicted, the boycott had little impact because, out of Facebook’s 7 million customers, the top 100 only account for 16% of revenue, and this has still risen by over 10%. The boycott may have even backfired on those big brands:
“Not only did they lose the business their Facebook ads would have brought in, but their absence created a void for counterfeiters and scammers to fill—because Facebook ads work on an auction model, reduced spend means reduced prices. Analyst Matt Stoller reported on a luxury shoe company that participated in the boycott, only to see ads for counterfeit versions of their shoes pop up where their own ads would normally have run. With eight million advertisers, and a model that creates immediate opportunity for others when one reduces spend, Facebook possesses the most robust (self-healing, even) customer base in the history of business.” Scott Galloway, Post Corona: From Crisis to Opportunity.
There’s also perhaps a subtler and purely consequential way in which Facebook and Google in particular have benefited from the pandemic though. It’s the distraction factor, as both seem to have fallen off the news radar with the media focus, naturally, being on the worldwide disaster. Before Covid-19 hit, pressure was building for formal regulatory measures to be put in place to better control highly dubious online content such as ISIS recruitment videos and paedophilia, or practices like data theft and online bullying, as well as calls to just break up the businesses simply because they’re a duopoly which has become too big and powerful. All this has subsided during the Corona virus pandemic and it will take quite a long time for the protests to resume and the pressure for regulations and change to regain a head of steam given all the other global issues. Again, I should stress I’m not a conspiracy theorist at all, but there’s no denying that FAGA, the tech big 4, have become more powerful and the competition weaker during the pandemic. They have the backing of most of public opinion in terms of users and can afford to continue funding the lobbyists to push back against attempts to regulate them, control them or break them up.