Green struggles to keep retail crown

By Manfreda Cavazza
Updated: 05:36 EDT, 27 October 2006

The Daily Mail's City Focus looks at whether retailing mogul Sir Philip Green is losing his midas touch

For someone who has built his image on being a shrewd operator capable of turning everything he touches into gold, Sir Philip Green is not delivering the goods.

Pretax profits at Arcadia, his clothing empire which includes Topshop, Dorothy Perkins and Burton, slumped 20% to £202m for the year to September. Underlying sales were down 1.9%. Unsurprisingly Green has decided not to pay himself a dividend.

Part of the reason for the profit drop is that Green has been loading Arcadia with debt in order to give himself bumper payouts. Last year he took out a bank loan to pay himself £1.2bn, for which he has had to pay £80m in interest charges.

The billionaire argues that underlying profits excluding interest were not so bad, falling 8% to £301m. He points out that debt has been reduced to £931m and that it will be paid off in seven years. But if the High Street remains tough, Arcadia faces an uphill climb to repay the debt and service the large rent bill for its 2,700 stores.

The latest figures are yet another blow for the retail chief, who has just lost one of his most talented lieutenants, Topshop's powerful brand director Jane Shepherdson. Only last month, he reported a 60% drop in profits at his Bhs department stores.

Green is putting on a brave face, but admits there have been some disappointments at Arcadia. Shoppers were turned off by the ranges at Miss Selfridge, which lost £3.5m compared with a profit of £3.5m last year.

Former M&S womenswear chief Yasmin Yusuf has been drafted in as brand director to help revamp the brand.

Green also said the warm weather had hit sales of winter knits and coats, warning: 'We do need some cold weather, that is a fact.' However, he says Arcadia has out-performed rivals in recent weeks by keeping stock levels tight. Sales in the last two months were down 1%, compared with a slump of 4.2% at Debenhams.

• In her first blog for This is Money, Lisa Buckingham, Editor of Financial Mail on Sunday, gives an extra insight into her shopping night with Sir Philip Green. Read it here.

Green is adamant his fashion empire is not falling apart at the seams. He said: 'This is not a disaster. When I bought Arcadia it was making £116m in profits. Now it is making £300m. We are still generating a lot of cash.'

The retail tycoon has shown a great talent for taking the fat out of Arcadia and Bhs, but he has yet to prove that he can grow a business-for the long term. Competition-is certainly not getting any easier. Cheap and cheerful rivals such as Primark have taken shoppers by storm, forcing other chains to slash their prices.

The resurgence of M&S is also taking its toll on all fashion retailers, as it revamps stores and updates its ranges.

Consumers have got less cash to spend thanks to higher interest rates and rising utility bills. And when they do venture out on to the High Street they are spending money on iPods and wide screen TVs. On top of that, retailers are having to absorb an increase in rents as well as a rise in the national minimum wage. But Green reckons has he has the expertise to weather the storm.

His fightback plan involves pouring £123m into revamping his shops. He wants to open larger stores, similar to the landmark Oxford Circus outlet in London, across the UK.

He is also going to start selling Topshop clothing in the US over the internet. Green has just signed up supermodel Kate Moss to design a range, which will hit the shops in April next year.

Arcadia is clearly not the stellar performer it once was. Over the last few years Green has made headlines for his financial knowhow and his ability to deliver out eye-watering profit increases every year.

He faces a tough challenge ahead if he wants to keep his crown as the UK's richest retail chief.