Arcadia to close 250 stores.

On 24th November 2011, Sir Philip Green owner of the Arcadia Group which owns BHS, Top Shop, Burton, Dorothy Perkins, Wallis etc announced that around 250 stores would be closed.

Reasons for the closures are a 38% reduction in profits. Pre-tax profits were £133.1 Million last year.

Philip Green and his Wife have an estimated worth of £4.2 Billion.

The Arcadia Group has 450 plus stores where leases expire in the next three years.

A Commercial lease is basically a property rental cotract which lasts usually up to ten years.

Unfortunately commercial leases and general costs of commercial property have been influenced by a couple of factors which are of interest to Anti-Crisis Economics....

The first is that many businesses like the Arcadia Group who aquire other businesses by borrowing from banks, soon after purchase (or acquisition ) of the company will sell off property owned by the business. This has short term benefits which include a sudden improvement in cash flow, an illusion that the company is performing better 'under it's new owners', then it really is. This is because sales of property will be added onto the profits for the company at the end of year accounts.

This company performance illusion will be a beneficial factor for all the following reasons;
1) Improved profits will be beneficial if the owner wants to sell a company either complete to a Private Equity Management Company.
2)Improved profits will boost potential share price if the company is to sell shares.
3)Improved profits will improve potential for raising capital from banks for further company acquisitions.
4)A sudden, but temporary cash flow improvement.

Sir Philip Green has sold off property owned by his businesses and to add to this, he has recommended to other big businesses that they should do the same in order to increase share holder divdends.

Sir Philip Green has sold off property owned by the Arcadia Group for any of the above reasons. The problem is that these benefits are only short term as Philip Green has found out to his own cost that selling of property ( and then renting it back ) means you lose control of the future costs.

Due to investments in property financed by banks, commercial property rents will continue to rise. This will have an inevitable affect on businesses which sell off their property. They will be closed down or atleast close down outlets where leases can not be agreed upon.

You may think that the free markets economy would adapt to this quickly to prevent closures on such a scale occcuring like those about to affect the Arcadia Group. Unfortunately, the way that the initial investors are so distanced from their actual investments ( in fact they do't know what their money is being invested in) they are unable to react in a way which would improve the situation. Banks have been lending money to property tycoons to buy up commercial property from many business like Arcadia. This is only adding to the for ever mounting problems being caused by the banks. If the initial investors with investment accounts or pension funds were told that their investment was actually going to be used to create problems for us all including the closure of shops and adding un-necessary costs to businesses the investor may choose a more sustainable type of investment.