With Christmas approaching, many high street stores will be hoping for a big increase in sales, but that seems unlikely to be enough for Arcadia, whose brands include Top Shop, BHS and Dorothy Perkins. Arcadia’s profits have decreased to £133m, which is a fall of 38% and, based on this data, it is planning on closing many stores across the country over the next few years. With leases expiring on many of their stores within about 3 years, the current plan, according to Sir Phillip Green, is to close about 250 stores. Speaking to the BBC, he commented:
‘Now, there may be other opportunities that turn up that we might want to open. But certainly, in terms of our existing portfolio, currently that’s our thinking.’
The economic climate has obviously played a key role, but so has the weather. With the hottest October and November for decades, people have been delaying their shopping and purchases of winter clothing and this has put increased strain on many high street traders (see the news item Dreaming of a white Christmas).
What is perhaps of more concern than one company’s profits being significantly lower is the impact this may have on unemployment. With over 2500 stores, Arcadia is one of the largest private employers in the UK and if 250 stores are closed, there may be severe consequences for the labour market and this may have further adverse effects on aggregate demand. A key factor that may partly determine the future of firms such as Arcadia is how much consumers spend this Christmas. Perhaps for these stores, they really may be hoping for a white Christmas – at least that may encourage people to stock up on winter clothes – if they can get to the shops!
Arcadia to close stores after reporting loss Financial Times, Andrea Felsted (24/11/11)
Arcadia and Dixons post profit loss BBC News (19/4/10)
Retail slowdown hits Arcadia stores Guardian, Zoe Wood (9/5/11)
Arcadia set to close up to 260 stores as profits fall BBC News (24/11/11)
Has Sir Phillip Green lost his Midas touch? Independent, James Thompson (25/11/11)
Arcadia suffers 40% slide in profits The Press Association (24/11/11)
Questions
- Explain why the current economic situation has caused a slowdown in retail sales.
- Illustrate the way in which a firm will maximise profits. If profits are declining, is it because sales revenue has fallen or that costs have risen? Adapt your diagram to show a fall in profits based on your answer.
- According to the article by the Press Association, margins were ‘squeezed by 1.8% as it took a £53 million hit to absorb price increases’. What does this mean?
- How might the unseasonably warm weather be an explanation for a weaker trading environment?
- If 260 stores are closed, what impact might this have on unemployment?
- If more workers lose their jobs, how might this have a subsequent adverse effect on sales? Think about the multiplier effect here.