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Published on November 30, 2020 by Holly Porter

What’s been happening in the commercial world over the last two weeks? Read on to find out!

Biggest COVID-19 Corporate Collapse

Last week, Arcadia Group is facing imminent collapse after a potential £30m rescue loan fell through. The British retailer owns household names such as Burton, Dorothy Perkins, Mis Selfridge, Topman and Topshop with nearly 2,500 stores in the UK as well as concession stands in department stores such as Selfridges and Debenhams. If the Arcadia Group enters voluntary administration in the coming weeks, it would be the biggest corporate collapse of the pandemic, endangering over 13,000 jobs.

It looks as though the Arcadia retail empire will be broken up, with buyers likely to fight over the stronger elements of the company such as Topshop, whilst Wallis Evans and Burton are likely to remain on sale for a while. The Arcadia Group may enter a light-touch trading administration, meaning shops will be expected to continue to trade until buyers are found either for the company or more likely individual brands.

Although the Arcadia Group has lost out on millions of pounds worth of sales due to COVID-19, there are longer-term problems at play here, notably Chairman Philip Green’s failure to appreciate the level of investment needed to have a successful online business. Many of Arcadia’s brands have struggled against newer, online-only fashion retailers such as Asos, Boohoo or Pretty Little Thing.

It is also important to note that there is a £350m hole in the company’s pension fund after pausing monthly pension payments last March due to business disruption. In 2015, when Philip Green sold BHS, its pension scheme was £571m in deficit. If individual brands are sold, the proceeds would end up here initially given the pension fund has a priority claim on the company’s assets.

Talking point: What is the importance of Arcadia’s pension fund deficit?

Issa Brothers Splash the Cash

Reduced footfall in city centres has hit Caffè Nero’s 650 stores hard in 2020. The British coffee house was forced to seek a rescue deal in November through a company voluntary arrangement (CVA).

However, this week, the Issa brothers have made a bid to Caffè Nero’s controlling shareholder Gerry Ford to acquire the brand. The move comes only a few months after the brothers’ £6.8bn Asda offer was accepted. The Issa brothers are co-CEOs of the EG Group, a British petrol station and fast food outlet retailer. The inclusion of Caffè Nero’s 5000 employees is therefore a natural extension to the group. The offer includes the payment in full of any outstanding arrears, something which Caffè Nero’s landlords will favour over the terms of the CVA.

Talking point: What are the pros and cons of using a company voluntary arrangement?

China-Australia Trade War

Whilst huge attention has been given to the US-China trade war, tension has been simmering between Australia and Beijing with relations reportedly hitting their ‘lowest ebb’ in a decade. Main catalysts in 2020 have been Australia’s global inquiry into COVID-19 which heavily criticised China and the subsequent Chinese response warning its students and tourists against working and travelling to Australia given the country’s racism.

How has the political backdrop affected trade between the two nations? China accounts for 32.6% of Australia’s exports and has been Australia’s largest trading partner for the last decade. Australia’s mines have been instrumental in this delivering iron ore, coal and gas to fuel China’s growth. However this year, relations have turned sour. Last week, after a several month-long anti-dumping campaign, China has imposed taxes of 107%-212% on Australian wine. China believes Australia is ‘dumping’ or subsiding wine imports so they are sold at a cheaper price in China than in a home market. Friday’s announcement led to a 13% share price slump for one of the world’s largest winemakers Treasury Wine Estates (TWE). For the first nine months of 2020, 39% of all Australian wine exports went to China.

Wine can now be added to the increasing list of goods Beijing has targeted. These include Australian imports of coal, sugar, barley and lobsters. Australia’s trade minister has since deemed Australian wine to be ‘unmarketable’ in China and is considering taking China to the World Trade Organisation (WTO) over the restrictions

Read more: When else have lobsters caused problems for world trade?

Record Stock Market Highs for November 2020

The FTSE 100 (Financial Times Stock Exchange 100 Index) is heading for its best month on record after COVID-19 vaccine hopes, beating its 14.4% monthly rise in January 1989. Following the news of Pfizer and Moderna’s successful trials, the index rose 14.5% in November, adding £210bn to the value of its constituents.

This increase represents a global trend, with the MSCI All Country index of stocks, which tracks the global market performance, surging over 14% this month. The index is also set to track its best month since creation.

It is important to note though, that despite record performances, the FTSE 100 remains 1,000 points below its January 2020 figure, reflecting the damage inflicted by COVID-19 to the economy as well as longer-term uncertainty regarding a trade deal with the EU.

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