Young shoppers defy credit crunch and keep Sir Philip Green smiling

The clothes entrepreneur said Topshop, Topman and Miss Selfridge are enjoying a record year as young consumers unburdened by mortgages continue to shop with gusto.

But the more mature brands in his Arcadia empire such as Dorothy Perkins and Burton are feeling the pinch.

"The younger market is going to do better in this sort of environment," he said. "The middle market is tough."

Group sales slipped slightly to £1.84 billion in the year to the end of August, with profits down six per cent at £275 million. Sir Philip, one of Britain's richest men with a fortune of about £4 billion, is not paying himself a dividend this year from Arcadia's profits.

He insists the Kate-effect is just one reason for Topshop's growth. "Kate has been a fantastic ambassador," he said of the model who is the public face of the brand. "We have been good for her and she has been good for us."

Topshop has opened a flagship store in New York despite the economic downturn. Sir Philip admits that times are tough, but he insists skilled retailers will still thrive. "We are having to work harder than ever," he said, blaming "unseasonal conditions" for making it difficult to stock stores appropriately. "Two weekends ago it was 22 degrees, no one was shopping for a winter coat then," he added.

Sir Philip is looking to snap up stakes held by Icelandic group Baugur in UK retailers such as Moss Bros, Woolworths and French Connection. This £1 billion deal seems to be on hold while Iceland works through its banking crisis, though Sir Philip remains keen. Sir Philip already controls a tenth of the UK clothes market and would like to expand while rivals are struggling.

In 2004, he saw a bid for Marks & Spencer refused by the board, although rumours that he would like to bid again circulate the City regularly. Arcadia has paid off £76 million of debt in the year, but still owes banks £695 million. Britain's high streets have been feeling the effects of the oncoming recession all year with department store Debenhams among the worst affected.

Reporting a 16 per cent slump in profits over the last year to £110 million and a 4.2 per cent crash in like for like sales over the last six weeks, chief executive Rob Templeman admitted he had "never seen trading like this before".

"It is very volatile," he said. "It is very difficult to predict where we are from one week to another."

While spending on homewares and household goods and then spending on menswear were the first to suffer, Mr Templeman said lipsticks, eyeliners and nail gloss were still shifting. "Health and beauty is staying resilient," he said. "Childrenswear too has remained strong."

Mr Templeman predicted Christmas sales will be skewed to electronics and gift food.