Sir Philip Green, the owner of BHS and Arcadia Group, is to merge the two companies in an attempt to make better use of store space and cut costs.

The move comes against the backdrop of a severe retail downturn in which BHS has fared worse than some of the brands in the Arcadia stable, such as Topshop.

While there will be job losses, Sir Philip said he would not close one of the two London head offices and the primary motivation was not to cut costs by cutting jobs.

“It’s a combination of product, store space, the brands we own,” he said. “In the market we’re now living with are there better ways to use the space? Can we be more opportunistic?”

Some BHS space will be devoted to Arcadia chains, which also include Burton and Dorothy Perkins. Arcadia’s stronger operational performance in some areas will be deployed to improve BHS.

An industry source raised the question of whether the move to aggregate the accounts could be motivated in part by a desire to hide BHS’s performance.

Sir Philip rubbished the suggestion and invited detractors to publish their bank statements alongside his “on the front page of the FT”.

He said BHS, with 5m sq ft of retail space, “should perform better” but he argued that customers who had seen recent product lines in homeware were buying; the problem was getting them through the door in the first place.

BHS had a tough year in the 12 months to March 29 2008, with operating profits falling 40 per cent to £30.2m. The chain made a profit of £114m in 2005, but since then has not managed to deliver profits above £53m. A further deterioration is expected this year.

The integration of BHS into Arcadia makes a once mooted sale of the homewares and clothing business less likely. However, the economic downturn and ensuing depressed valuations of companies, particularly marked in retail, had ensured for some time that a sale was not plausible, particularly given the fact that Sir Philip is in no way a distressed seller.

His preference to hold much of his personal wealth in cash in the past few years and the relatively modest leverage at the two companies has safeguarded his empire from the worst of the downturn.

He bought shares in Moss Bros last year before concluding he was unlikely to be able to buy the men’s wear chain outright because of opposition from some shareholders. He sold them for a profit.

The entrepreneur has also kept a close eye on the unravelling investments of Baugur, the Icelandic investment group, and has said publicly that he has funds to invest for the right retail assets at the right price.