Tag: economic crisis

UK retail giants collapse

By David Meyer for Fortune

Just as the coronavirus pandemic forced big U.S. retail names such as J.C. Penney and Neiman Marcus into bankruptcy, it is now wreaking similar havoc in the U.K.

On Tuesday, the Debenhams department store chain collapsed, possibly spelling the end of a business that has been running for nearly two and a half centuries. The implosion was the indirect result of the collapse, one day previously, of Topshop owner Arcadia Group.

In total, around 25 000 jobs are now at risk.

Cascading collapse
Arcadia Group, whose other properties include high-street staples such as Dorothy Perkins and Miss Selfridge, went into a form of bankruptcy protection on Monday following the reported failure of emergency financing talks.

The fashion empire, run for the last 18 years by the flamboyant and controversial magnate Philip Green, is not laying people off immediately, but 13 000 jobs hang in the balance, particularly if no buyers can be found for its businesses.

“The impact of the Covid-19 pandemic, including the forced closure of our stores for prolonged periods, has severely impacted on trading across all of our brands,” said CEO Ian Grabiner in a statement.

That first domino then pushed over Debenhams, which was also on the brink.

The sportswear retailer JD Sports had been in talks to rescue the venerable chain, which had been looking for a buyer since going into administration in April. But, as Arcadia’s businesses were the biggest concession operators in Debenhams’ department stores, JD Sports took Monday’s news as its exit cue.

“The sale process has not resulted in a deliverable proposal,” Debenhams said in a Tuesday statement.

“Given the current trading environment and the likely prolonged effects of the COVID-19 pandemic, the outlook for a restructured operation is highly uncertain. The administrators have therefore regretfully concluded that they should commence a wind-down of Debenhams UK, whilst continuing to seek offers for all or parts of the business.”

The U.K. is due to leave its second national lockdown period Wednesday, moving instead to a tiered system of regional restrictions that will allow non-essential shops to reopen. Debenhams will reportedly use the “Wild Wednesday” opportunity for a fire-sale of its stock.

Arcadia post-mortem
The difficulties of the department-store model in the age of e-commerce are by now well-known, with COVID-19 in many cases being the straw that broke the camel’s back. Arcadia is also seen as a victim of existing weaknesses, such as its positioning in a time of widening income inequality, as well as the pandemic.

“Most of the brands under Arcadia Group, especially Topshop, sit in the mid-range for price points,” said Melissa Minkow, retail industry lead at digital consultancy CI&T, in an emailed statement.

“We’ve seen mid-priced retailers struggle across the board because of the massive rift between low- and high-income groups. As the middle-income demographic shrinks, so does the success of mid-range retail. On a similar note, Arcadia Group’s brands’ failure to identify with either fast fashion or more quality, high-end messaging means a failure to connect with consumers at a values-based level.”

The news of the collapses prompted words of sympathy from leading politicians.

Alok Sharma, the business secretary, tweeted Monday evening that the Arcadia collapse was “incredibly sad news” and the government “stands ready to support those affected during this difficult period.” The next morning, shadow business secretary Ed Miliband—a former leader of the Labour Party—responded to the combined Arcadia and Debenhams news by decrying “a devastating day for the high street.”

Miliband went on to urge the government to “press Philip Green to do the right thing for his employees’ pensions.” Arcadia’s pension scheme is reportedly £350million ($466 million) in the red.

Green and his wife Tina Green (the actual owner of Arcadia, via her Taveta Investments vehicle) are controversial figures for many reasons.

High on the list is their lavish, Monaco-based lifestyle—they have a £100 million ($134 million) super-yacht moored in the tax haven—but Philip Green has also been accused of of sexual and racial harassment, and a parliamentary report in 2016 described him as the “unacceptable face of capitalism” over his role in the collapse of the BHS retail chain, which he sold the year before for just £1.

 

The recession that never happened

The South African economy grew 3.1% during the fourth quarter compared with the previous quarter — putting growth for the year at 1.3%, beating Treasury’s and other forecasts.

Compared with a year earlier, gross domestic product (GDP) increased by 1.5% in the fourth quarter of 2017.
Treasury had expected growth of 1% for the year.

The largest positive contributor to fourth-quarter growth was the remarkable recovery in the agriculture, forestry and fisheries sector, which increased 37.5% and contributed 0.8 of a percentage point to GDP growth.

The trade, catering and accommodation industry grew 4.8% and contributed 0.6 of a percentage point.

The primary sector (which includes agriculture and mining) increased by 4.9%, the secondary sector (manufacturing, electricity and construction) grew by 3.1% and the tertiary sector (trade, transport, finance, government and personal services) grew by 2.7% compared with the third quarter.

This signals that the country’s economy is poised for a recovery.

It is a vast improvement on the dismal 0.3% GDP growth achieved in 2016 but still remains weak by the country’s historic standards.

In the third quarter, the economy grew by 2% quarter on quarter, demonstrating a resilience that suggested it was in better shape than most economists had previously thought.

Expenditure on real GDP increased by 3.1% in the fourth quarter of 2017, while final consumption expenditure by general government increased by 1.3%.

Treasury is forecasting growth to rise to 1.5% in 2018 on political and policy certainty, renewed confidence and rising private fixed investment.

Finance Minister Nhlanhla Nene said on Monday that it was likely that the growth forecasts would be revised upwards due to improved business and investor confidence.

Growth for 2016 was revised up to 0.6% from 0.3%.

Third-quarter GDP growth in 2017 was revised higher, from 2% to 2.3%.

The changes were based on better access to data sets, said Statistics SA deputy director-general Joe de Beer.

The revisions indicate that SA wasn’t actually plunged into a recession last year. A recession is based on two consecutive quarters of negative growth.

The performance in the fourth quarter of 2016 has been revised from a 0.3% contraction to growth of 0.4%.

By Sunita Menon for Business Day

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