Parasitic capitalism

Damaged Goods: The Rise and Fall of Sir Philip Green

By Oliver Shah

Published by Penguin, 2019, £9.99

Reviewed by Iain Dalton

With last autumn’s release of the film Greed, a satire loosely based on the life of Philip Green, and the man himself in the news once again around a pension scandal, this time suspending payments into the Arcadia group pension fund, this story of how his custodianship of British Home Stores (BHS) ended in crisis is especially relevant.

Oliver Shah, a business journalist with the Sunday Times, was one of those who revealed the tale of the unscrupulous way Green tried to offload BHS responsibilities. But as well as recounting his role in Green’s downfall Shah also seems to be grinding a personal axe, revealing many private conversations and quotes from texts sent to people close to Green.

Early in the book he details abusive phone calls from Green whilst working on stories about BHS and Arcadia group with swear words thrown around, even threats of violence. Towards the end he recounts trying to get an interview with Green to be told “nobody’s going to buy your f***ing book”.  However the reader is left with a clear picture of the unsavoriness of Green and those who he surrounds himself with.

Whilst Green is a pariah now, he was lauded in the past, being appointed a special advisor to David Cameron on public spending. Shah quotes Tony Blair, under whose premiership Green was knighted, as describing Green as “the person who thought up the dream and dreamt the dream into reality”.

Shah makes clear however that Green is far from the self-made man he portrays himself as. “Most of Green’s early projects”, he writes, “were, directly or indirectly, financed by his mother”. Green’s mother, Alma, owned petrol stations, a launderette, an electrical shop that had been owned by Green’s father before he died, and was a buy-to-let landlord with around 60-70 properties who could afford to put Green through private schooling.

Green is revealed as a classic asset stripper, taking over retailers and suppliers that have run into hard times but have more underlying value in assets or money owed that he can exploit. One early example of this was the denim brand Bonanza. It had borrowed £4.5m from a bank which went under and had its debts called in. Green was able to take over the company and settle with the failed bank’s administrators for just £1.1m, but then was able to chase over £2m from debts owed to Bonanza.

His buyout and breakup of retail conglomerate Sears in 1999 for £548m is another case in point. After selling off its store card business for £141m, Freemans catalogue for £150m, Adams childrenswear chain for £87m, and selling the Arcadia group (which he was soon to take over) Sears fashion brands including Miss Selfridge for £151m, he had almost recouped the money his consortium had paid, whilst also keeping the Sears property portfolio worth almost £300m. His wife Tina had purchased 1.8m shares in Sears before Green’s interest became public knowledge, netting herself a mere £3.6m from the deal.

But like Sears, it was the property portfolio of BHS, worth £350m, that Green set his eyes on as the prize for taking it over in 2001. The entire purchase price of £200m for BHS was borrowed from two banks (with interest totalling £69m paid for by BHS itself), with Green only putting in £20m in equity once he had sold shares to two other investors. To attempt to show he wasn’t an asset stripper, he pledged to run it as a going concern. From struggling profitability at the time or purchase, BHS began to turn a profit.

But as Shah reveals, this was because one of the other investors, Richard Caring, was a major supplier to BHS and sold it items cheaply to boost its margins. “A Caring business, Tapestry Design Company”, he recounts, “sold goods to BHS at a margin of 4.8 per cent. The same company supplied Debenhams at a margin of 12.6 per cent and Tesco at 17.3 per cent”.

As a result of the improved profits BHS paid out dividends of £167m in 2002, £57m in 2003, and £200m in 2004 – the Green family’s stake meant they received £308m from this source, whilst Green also sold off the nine best store locations plus its Marylebone headquarters to a holding company for £106m, then recouped £136m in rent over that period!

Shah quotes a worker in BHS’s Luton store about the decay of the company’s physical infrastructure. “Water was leaking through the ceilings and we would have to clean it up. They’d get people in to look at it, the quote would be too much, they’d do a patch job and it would leak again – and we were losing stock because it was going everywhere”.

Even when the BHS miracle began to fade following Caring’s departure, Green still found ways to squeeze money out of it. After merging BHS in with Arcadia group, “he installed concessions for Arcadia brands such as Dorothy Perkins, Evans and Wallis in BHS’s stores, making an extra £400m in sales for Arcadia and costing BHS about £33m compared to the rates normal concessionaires would have paid”.

It was in this period that the position of the BHS pension funds began to slide. When Green took over the two pension funds had a surplus of £43m, but he insisted on a pensions holiday agreed by the trustees. As BHS’s profits declined he restricted how much could be put into the now growing deficit.

It was this situation that made Green desperate to sell BHS, but most buyers wanted indemnifying from any losses in the pension scheme, something Green wasn’t prepared to countenance. Instead he turned to individuals most people would describe as ‘crooks’.

Firstly, a consortium was put together by serial bankrupt Paul Sutton. Then when his past got out to Green, it was instead fronted by Dominic Chappell, who had left his previous job after being accused of misappropriating £300,000. Chappell had no retail experience, yet with Green desperately trying to get out of any obligation to the BHS pension scheme, a deal was struck to buy BHS for just £1.

To give the air of authenticity Goldman Sachs signed off on the deal, in the hope of participating in the then anticipated future sale of Arcadia group’s leading brand Topshop. This was despite a Goldman Sachs banker advising Green’s lieutenants that “the proposal was ‘lacking in detail’ and that Chappell ‘had a history of bankruptcy’.”

The buyout ended in disaster with 11,000 workers losing their jobs and pensioners taking a cut to the pension funds, despite after much feet-dragging securing a £363m bailout from Philip Green. Green has faced no formal sanction for his actions, retaining his knighthood still despite calls for it to be stripped, whilst Chappell is still at large though being pursued through the courts by the pensions regulator.

Whilst Shah undoubtedly has empathy for the ordinary workers in BHS and the other companies referred to, they are just the backdrop to his unveiling of the likes of Green and Chappell as ‘the unacceptable faces of capitalism’. But the inequities of capitalism aren’t just caused by the ‘bad apples’ but by a system that allows them to thrive. Posing a socialist alternative, where workers lives aren’t ruined by the whims of the bosses, but instead democratically controlled by their own organisations, is beyond him.

Still, this book, in giving a powerful insight into the murky world of private equity companies and the wheeling and dealing of so-called entrepreneurs, shows just how parasitic the capitalist system is.