UK retail watchers may be wondering if the whole high street will soon go online after boohoo Group PLC (LON:BOO) snapped up Debenhams’ brand and intellectual property while ASOS PLC (LON:ASC) is the frontrunner to rescue Arcadia’s Topshop, Topman, Miss Selfridge and HIIT brands.
boohoo has also confirmed it is in exclusive discussions with Arcadia's administrators to buy Dorothy Perkins, Wallis and Burton.
READ: boohoo confirms talks to buy Arcadia’s Dorothy Perkins, Wallis, Burton
It is not clear what will happen to the former 118 Debenhams department stores, though the boohoo acquisition means up to 12,000 jobs are at risk.
Similarly, if Arcadia’s administrators Deloitte accept ASOS’s or boohoo's offers, 13,000 jobs will be on the line.
“Both firms are looking to cement their market positions in what remains a highly competitive market,” said Russ Mould, AJ Bell investment director, adding that these developments show “the pace remains as relentless as ever in the world of fast fashion”.
Makeover for boohoo
For AIM-listed boohoo, which sealed the deal for the relatively modest sum of £55mln, the acquisition will see it branch out into the new categories of beauty, sports and homeware relying on Debenhams’ solid website which is one of the most visited in the UK by traffic.
With 6mln beauty shoppers and 1.4mln members of its Beauty Club, Debenhams’ beauty sales operate under a wholesale model, which Boohoo intends to continue, with new third-party beauty brands added “via the marketplace model”.
The 15-year-old online retailer wants to become “the UK's largest marketplace” as it plans to expand the range of products sold wholesale via the Debenhams website by maintaining existing third-party brand relationships and adding new brands over time, while also selling its existing clothing brands.
The online trend is well-established but the speed with which Debenhams has disappeared from the high street is still breath-taking.
April 2019 (1st administration) - 165 department stores, 25,000 staff
April 2020 - 142 shops 22,000 staff
c.April 2021 - 0 shops, 0 staff
— Joel Hills (@ITVJoel) January 25, 2021
Experts are concerned about the delivery of this ambitious initiative, which management seemed to pitch as making the fashion group more of a competitor of beauty products and food supplements giant The Hut Group (LON:THG), where its Ingenuity Commerce platform has helped boost its valuation.
The main challenges for boohoo will be management bandwidth and focus, on-boarding the beauty brands and the operation of marketplace, according to analysts at broker Peel Hunt, especially as the company won’t have full control over third-party stocks and fulfilment.
The broker reckons the retailer will be able to overcome these issues with time, and believes this is a great opportunity since it will gain traction in new market segments for little financial risk.
But it will mean boohoo will be fighting on many more fronts, so the market may question whether it would be better off sticking to fashion where it is already battling massive competitors such as H&M and Zara, and where it’s also making efforts to improve governance after the Leicester factory scandal.
“All merger and acquisition deals bring risk, starting with the price paid and then any initial investment required to ensure the target is capable of doing what it is supposed to,” Mould commented.
“But the real trouble starts with most deals when the acquirer takes on two new variables at once – a new business or industry and a new geography, for example.”
Throwing Arcadia's brands in the mix will add a whole new set of challenges for managers.
ASOS vs Topshop to end
Looking at ASOS, a potential Topshop buyout may sign off a decade-long spat after Sir Philip Green said in 2012 his brand didn’t need to use the online retailer’s platform to sell its stock because it already had one.
However, Arcadia caved in two years ago and allowed ASOS to stock Topshop items.
“The Topshop name was top of the pile in the early 2000s under the guidance of brand directors Jane Shepherdson and then Mary Homer and it may still have enough cachet for its fortunes to be effectively revived,” Mould continued.
“Miss Selfridge could develop a nice niche for itself with the proper levels of investment and backing, as the brand caters well for the squeezed middle (in terms of both income and taste between fast fashion and high end). Quite where this leaves the Dorothy Perkins and Burton names is unclear.”
Although the AIM-listed firm said the discussions with administrator Deloitte are exclusive, it is understood Chinese e-commerce giant Shein and Asda owner EG Group are also fighting in the bidding war.
Coincidentally, EG Group’s chairman is Stuart Rose, who was chief executive of first Burton in the mid-1990s and then Arcadia itself at the turn of the century before he left to lead Marks & Spencer.
Quite a year, was 2006:
- Boohoo was founded and registered as "Wasabi Frog"
- Asos annual revenue reached a princely £19.7m
- Debenhams returned to the stock market with a £1.7bn valuation
- Philip Green was knighted for services to the retail industry
— Jonathan Eley (@JonathanEley) January 25, 2021
The fact that ASOS and boohoo, the biggest companies listed on the junior market, are taking the retail sector by storm is proof that consumer behaviour has changed for good, albeit at a faster pace than expected due to the pandemic.
ASOS, which remains ‘the king of AIM’ with a £4.5bn market capitalisation, shed 5% to 4,514p at lunchtime while runner-up boohoo was worth £4.3bn after advancing 3% to 342.4p.
--Adds boohoo/Arcadia update, Friday share prices--