What can we learn from the fall of Topshop and the Arcadia Group?
Are we at risk of seeing more U.K’s high street chains fall if they fail to act?
The death of Topshop and the Arcadia Group is by no means an accident. It is the ongoing negligence of directors failing to act upon real world trends. It is no good blaming these shortfalls on COVID-19. Whilst I admit this is difficult time for everyone, COVID-19 has only acted as the catalyst exposing what real consumers have come to expect from their retail experience.
Young competition from the likes of Asos and Boohoo have reaped the financial rewards by incorporating lean business practices and investing their financial capital into growing their digital platforms. They are able to react more quickly than their brick-and-mortar competitors to what their consumers want.
As the administrators Deloitte begin the tedious process of carving Arcadia’s assets, there are some questions we do need to ask ourselves. Where were the accountants in all this? Did they know that Arcadia was at the brink of failure? Were the accountants being held back by poor business culture practices? Did they have more to gain from the fall of Arcadia? Or were the accountants simply not aware of what customers have come to expect in today’s fast moving digital world?
These are questions we need to ask. The economist Milton Friedmann in 1970 set the world on a trajectory that would impact people’s ideology on what it means to be a Business Executive. He was famed for stating that the aim of a business was to make money for its shareholders and that business executives who disagreed and deviated away from this thinking were ““unwitting puppets of the intellectual forces that have been undermining the basis of a free society these past decades.”
It is this very logic that has led companies in the drive for profits. While, profitability is important for a company’s business health, profit reports do not tell us full story of what is happening behind the scenes. The author and strategist Fred Reichheld coined the term “bad profit” in his research and writing. It does not tell us whether profits are being earnt at the detriment of our stakeholders.
What do organisations need to do?
So how do we change companies’ corporate behaviour to reflect this? Firstly, we need directors and finance teams to understand what their customers want and what they experience on a day-to-day basis. This means hiring people within these teams who are reflective of our organisations’ customer bases. Nowadays, our world is constantly changing, and we need to get a grip of market trends.
Secondly, we need to generate a business culture in organisations where people are not scared to share ideas and open to tell us when we are going wrong. Think back to 2006, Microsoft decides they will go up against Apple and the iPod with their own version Zune. Most people nowadays will go what on earth is a Zune? Microsoft failed by focusing their Zune marketing campaigns to a small segment of music listeners. As a result, Apple captured a broader market of music listener and Microsoft’s Zune was confined to history books.
Furthermore, organisations also need to understand how their products and operations influence their stakeholders and the external environment. Take for example palm oil which is a product that is used vastly over major sectors like food, pharmaceuticals, biofuels and animal feed. However, the manufacturing of palm oil has led to mass deforestation, the destruction of the habitats for endangered species like orangutans and tonnes of emissions of greenhouse gases. In addition to this, some palm oil producers have also been criticised for their exploitation of workers and the use of child labour. Organisations now cannot afford to ruin their reputations through unethical practices. They need to take fiduciary responsibility for the organisation’s actions and incorporate a code of ethics within their operations. The United Nations through their Sustainable Development Goals set a blueprint for how organisations can focus their organisations’ corporate social responsibility goals over economic, socio-political and environmental sectors.
It is very easy for the finance profession to attempt to quantify the impact their organisations are having on the world. We unfortunately cannot always take quantitative approach when it comes to assessing the impact of our operations on areas like our environment, humanity and knowledge as these are intangible. This is where we could use integrated reporting to communicate with stakeholders acknowledging that our products and operations have an impact on these areas and how we are going to use our organisations’ corporate social responsibility programmes to minimise the impact in the future. The more transparent we are, the more trust we can build with our stakeholders and communities.
