Sir Philip Green: Top Shop

The record-breaking billionaire on mammoth deals, his high-street empire and the one that got away

Meeting Sir Philip Green can be an intimidating experience. Everyone who has encountered him has an opinion, but they’re frequently contrasting.

Is he the brash, foul-mouthed wide boy, who once rang a journalist to tell him he’d read his article and subsequently put it “under the cat’s arse where it belongs”? Or is he the multi-talented entrepreneur, the finest retailer of his generation, and the owner of one of the best minds in British business? All of the above, probably – and more besides.

To call Green’s tale a rags-to-riches one would be to stretch an overused term, but the middle class, Croydon-born Jewish boy, who left school at 16 without a single qualification, has certainly come a long way. Last year’s Rich List placed him as the ninth wealthiest man in the UK, with a personal fortune of almost £5bn. He might be as flash and wide as they come, but he’s also charismatic, incredibly sharp and fiercely intelligent, particularly when it comes to sizing up a business and working out its operational needs and exit potential.

His reputation as a retailer is arguably second only to his renown for striking remarkable deals. Famously, in 2005, he paid himself a £1.2bn dividend from Arcadia, the retailer he had bought in 2002 with only a few million pounds of his own money. He can identify a target in hours, secure billions of pounds worth of funding in days and be exiting the business with multimillion pound profits in months.

While his detractors have levelled accusations of asset stripping at him, he vigorously denies his deal-making nous makes him a one-man personification of private equity. “Throughout my career, I’ve always thought there was a fundamental difference between being efficient and being a cost-cutter,” he tells me.

We’re talking at Arcadia’s suitably flashy fifth-floor head office just off Oxford Street, where Green sits at the head of a glass-topped boardroom table, surrounded by glossy black furniture and sliding doors that give way to a wooden-decked balcony. From here, he can survey the world famous high street of which he controls a major slice. In fact, thanks to Arcadia, he runs 12% of the UK clothing retail market. His empire is the second largest in the sector, and he’s been close to owning the leader, Marks & Spencer, on more than one occasion. “Arcadia will probably go down as one of the best deals ever done in retail,” he says, at pains to emphasise it wasn’t “leveraged off the roof”, even if he only put £10m of equity into a deal that was to secure such colossal returns.

“This is very important,” he stresses. “We repaid and then refinanced. If I’d wanted to operate like a lot of people, we could have taken £2bn based on the multiples that people were borrowing – six, seven and eight times cashflow. When we did £1.2bn of dividend, that year the company made a £327m operating profit. We could have borrowed far more, but that’s never been my strategy. It’s always borrow, repay quickly and build the business.”

It’s hard to argue when you consider that six years on, Arcadia has added a quarter of a million square feet of selling space, employs 25% more people and has generated in excess of £2bn in EBITDA.

Green has also worked hard to develop each of Arcadia’s brands – including Topshop, Topman, Miss Selfridge, Dorothy Perkins, Burton, Evans and Wallis – in a distinctive way, with impressive results. “I like to think that Topshop is becoming a global brand,” he says. For once, Green is the master of understatement. Under his stewardship, the shop has revolutionised high-street retailing. The previously mediocre store is now a talisman of UK fashion, loved by teenagers, celebrities and fashion editors.

Going public

For a man with such natural flair, it’s surprising to hear he fell into retail almost by accident. Tellingly, though, when asked what job he’d do if he wasn’t a retailer, he struggles to think of one that interests him. “Who knows? A photographer,” he jokes, flashing a grin at the freelancer who’s busy taking pictures of our interview. “If you’ve got a natural talent, I think it’s fantastic. If I wasn’t in retail, being a singer or a tennis player would be a better idea.”

After leaving school, Green worked for the family firm, one of the first shoe importers to bring products in from China and Hong Kong. Exposure to international trade proved invaluable, and he says he’s grateful that the people who trained him taught him about finance, credit, importing and product. If he was to become interested in the more creative, product-buying side of the business, his understanding of the basic principles of retailing was instinctive. “There’s a difference between being a rag trader, in the politest sense, and a businessman that sells clothes,” he says.

His business philosophy, inspired by these early experiences, is direct, pragmatic and remarkably simple. “I’ve always understood how to buy merchandise and run my businesses efficiently,” he says, and countless suppliers will testify to his talent for driving a hard bargain. “Even now, in the toughest times we’ve known, there’s a finite number of levers you can pull in any business. After that, you’re in the swim.”

After four false starts (a compelling case for the ‘don’t give up’ mantra that’s drilled into budding entrepreneurs), Green made his first million at 33, with Jean Jeannie, a struggling fashion chain he bought for £65,000 in the mid-1980s. He sold it six months later for £3m. It was a neat piece of business, and one he’d repeat on a much larger scale on several occasions.

Before hitting his stride in the mid-1990s, Green was to have a bruising encounter with the machinations of public company life, as chairman and chief executive of discount retailer Amber Day. Like countless other entrepreneurs who have struggled to square owner-manager life with being the steward for other people’s money, Green didn’t get on with the City, and after an initial honeymoon period, profits collapsed in the early 1990s. Four years of arguments and management disputes ended with Green’s resignation and a £1.1m payoff. He hasn’t run a public company since.

Days of speed

After buying department store chain Owen Owen in the 1990s and subsequently selling off its stores to operators including Debenhams and Alders, Green was to propel himself to the entrepreneurial A-list with his 1995 purchase of Olympus, alongside Sir Tom Hunter. The pair turned their £1 purchase – including the assumption of some £30m in debt – into a £550m exit when they sold out to JJB Sports three years later. Green, who personally pocketed £73m from the deal, had clearly got the taste for big, fast deals, and now he had the track record too.

When he set his sights on a hostile bid for the Sears retail chain in 1999, the big-hitting and famously reclusive Barclay brothers were willing to join Bank of Scotland in backing him in a £538m deal. Hunter was again involved, although he was a late entrant to the party.

“Several hours before we were going to make the bid, one of the banks we were working with decided it couldn’t finance it,” recalls Green. “At five in the afternoon, the night before we were due to bid, I phoned up Bank of Scotland to say we were stuck.”

Green would need £150m if the deal was still to go through. Within 20 minutes, the bank called to say they’d do the deal, subject to a personal guarantee from Green, the Barclay brothers and Tom Hunter. The problem was Hunter had no previous knowledge of the deal. “I phoned him, and by a 20 million-to-one chance, he was driving down Park Lane,” says Green.

Within minutes, Hunter was knocking on Green’s door, his attire of flat cap, trainers and T-shirt in sharp contrast to the immaculately turned out Barclay brothers, who were already there.

“I told him I needed him to sign a guarantee for £150m. He was in town to watch a Fulham game, so he told me to bring the paperwork to the restaurant he’d be in after the match. He signed that night and we made the bid the next morning.”

It wouldn’t be the last time that Green raised a colossal amount of finance at breakneck speed, but it was a little hairy, even by his standards. The subsequent break-up and disposal programme, including the sale of some assets to a pre-Green Arcadia, raised £729m and cemented his reputation for funding and executing impressive deals.

“We got our money back very quickly,” he says. “We made the bid on January 13, we had control on the 30th, and we locked the door on July 30. Done and dusted, back to the beach.” Green is also proud that the sale didn’t involve “wholesale carnage”, and there were no redundancies. 

After a failed hostile bid for Marks & Spencer, also in 1999, he turned to the struggling BHS, which he acquired for £200m. His turnaround of the business has seen profits triple to over £200m a year.

Deal or no deal

If Green’s image as a great dealmaker was already sealed, his £850m purchase of Arcadia in September 2002 earned him a place in the record books. The eye-watering 2005 dividend was the fastest £1bn in corporate history. That he repaid the £808m he borrowed to finance the deal in two years and produced a massive increase in profits at the group (£380m pre-tax at the last count), highlights a financial genius that combines buying and selling assets at the right price with an enviable talent for operational execution, much of it based on a keen eye for product and a talent for sourcing goods cheaply.

Times have changed, and Green counsels patience these days. “The days of financial jiggery-pokery are gone,” he says. “If you were going to buy a business today, you’ve got to believe that you’ve got operating skills for that sector. It’s going to be about knowing your market, your sector and how to make it work. More importantly, you should have a three to five-year view. You need to be able to hold the assets, operate and manage them. There are no quick ins and outs.”

However, as valuations fall, Green hopes that people who were once frozen out of property ownership and entrepreneurship by high barriers to entry will be “sufficiently entrepreneurial” to seize the moment. Established entrepreneurs feeling predatory are advised to hold on before making cut-price acquisitions, though. “It’s still a little early,” says Green. “Trying to guess the bottom of the market is always tough, but we’re probably not there yet.”

Perhaps this is why he said no to snapping up the struggling Moss Bros just before Christmas last year, despite buying a 28.5% stake in the men’s retailer for £6.7m in November. The time was not right for an offer, he says, and besides, there are “a million things” being offered to him. He sold the stake two weeks later, making a £1m profit.

Making his mark

One persistent rumour is that Green might reignite his interest in Marks & Spencer, following failed bids in 1999 and 2004. The first one went awry, he says, because he didn’t have it structured correctly, but his failure to secure control of the company five years later angered him.

“It had got into a mess,” he recalls. “I walked in at the end of 2003 and thought it was a great opportunity.”

In fact, he reportedly visited the flagship Oxford Street store and was so appalled by what he saw that he decided, there and then, to buy the company. When he bumped into Marks & Spencer’s then chief executive, Roger Holmes, at a trade dinner the next evening, he said: “I was in your Oxford Street store yesterday.” When asked what he thought, Green replied in typically unequivocal fashion: “I’ve never seen a bigger pile of shit in my life.”

Green’s reputation for retail brilliance and his ability to forge relationships with bankers helped him to raise over £12bn for the takeover attempt, including £1.6bn of his own money. However, when Sir Stuart Rose replaced Holmes, Marks & Spencer suddenly had a credible management team, and the price rose higher than the £4 a share Green was willing to stretch to. “I had the tools to fix it,” he says, still smarting. “I understood the customer and what needed to be done. With the ideas I had and the people I was thinking of working with, we’d have done a great job.”

With the share price now around £2.25, you wouldn’t bet against him having another go, although whether he could operate in a public company again, or if he’d take it private instead is open to debate.

“The idea of privately owning one of the world’s most iconic brands for the right reasons would be pretty appealing,” he concedes, although he makes no suggestion that he has any plans to make another bid in the immediate future.

If he does, it will be on his own terms and at the right price. “At the end of my career, doing a bad deal is not the idea,” he says, when asked why he pulled out of the running in 2004. “I don’t want the last line in the book about Philip Green to say that he fell over and broke his leg.”

In his own words

On retail success

“Your product has got to be great, you’ve got to understand your customer and you’ve got to know your market. You can’t learn how to have a good eye”

On his first failed bid to buy Marks & Spencer

“I’ve never spent 30 seconds of my life regretting things or going over things I could have bought. If I can’t do something, it’s ‘next case doctor’”

On his second failed bid for Marks & Spencer

“If someone’s going to put £1.6bn of their own family money up, I want to follow them”

On the failure of Woolworths

“Woolworths was what I call a ‘wholesale retailer’. It relied far too much on third-party merchandise at the wrong margins. They weren’t inventing or creating any of their own products”

On the financial crisis

“Picking up the paper every day now, how is the consumer not going to be afraid?”

On his bid to buy Icelandic retail group Baugur in 2008

“If you’re on your way home and you go past a house  with a sign outside saying ‘half price’, you’re going to knock on the door, aren’t you?”

On bravery

“I am brave, but I take a view. It is an educated view. I am careful, not reckless”

On the government’s temporary cut to the rate of VAT to 15%

“Any benefit offered to the consumer in the market we’re in is going to be helpful. Do I think it’s the ultimate answer? Probably not. But it won’t go amiss”

In 2007, on getting Kate Moss on board at Topshop

“I look at her as an educated risk, in terms of would you, won’t you, could you, might you?”

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