If proof were needed of the scale of change underway in retail, it came this week as pureplays Asos and Boohoo swooped on two of retail’s most venerable high street names.
Asos, founded in 2000, is in exclusive talks to buy Arcadia brands including Topshop, founded in 1964 and a fashion trailblazer until it hit the wall under Sir Philip Green’s ownership.
Boohoo, launched in 2006, has acquired the brand, customer data and website of 240-year-old Debenhams in a £55m deal.
The deals mark a changing of the guard as a young generation of growing online companies thrive while some more traditional retailers fall, whether as a result of self-inflicted wounds, the weight of costs including business rates, failure to respond to changing shopping habits accelerated by the pandemic – or a combination of the three.
In the old days, retail M&A was frequently about control of points of sale, land grabs that through an extension of geographical reach were designed to pay off in sales and profits. The acquired brand was often replaced by the buyer’s – think Primark’s acquisition of Littlewoods shops in 2005 or Morrisons’ pounce on Safeway around the same time.
Deals are different today. The online model, easily activated internationally as well as at home, allows shoppers to be served through a handful of sites. Acquisitions are about the consumer resonance of brands, customer data and new ways of doing business.
“The shift online of Arcadia and Debenhams does not mean the physical store is dead”
Topshop products are already sold on the Asos site, giving the etailer a good idea of its value and further potential through concrete experience rather than reliance on due diligence. Plus, the Topshop brand can be plugged straight into Asos’ platform and capabilities – from logistics to marketing – without much of the complexity that would come with a stores deal. Asos knows what it can profitably afford to pay if necessary for a powerful brand such as Topshop and will not bear costs such as property, which others may have to factor in.
Similarly, Boohoo sees powerful shopper appeal in the Debenhams brand and online platform. It is easy to forget amid Debenhams’ travails that its website draws 300 million UK visits a year and it was one of this country’s top 10 retail sites by traffic over the crucial Christmas trading period.
Control of the brand also allows Boohoo to push beyond its established fashion market into categories such as beauty and homewares. Debenhams has, for instance, 6 million beauty shoppers and 1.4 million Beauty Club members. Ironically, Boohoo’s adoption of a marketplace model means the business is a digital version of the department store where concessionaires play a central part. That marketplace approach is becoming ever more prominent across retail, with Next, Joules and, more recently, M&S, following similar paths.
Good owners
While Asos is interested in retaining Topshop’s iconic Oxford Circus store if possible – and it may not be – bricks-and-mortar shops and the jobs that go with them do not figure large in the new-style deals.
Debenhams’ 118 branches will close, as will Arcadia’s 400 or so in the UK. Around 25,000 jobs will be lost as a result. It is a harsh fact for the workers involved but the new breed of retailer needs far fewer employees. Boohoo employs 3,000 staff and Asos 4,000 – another factor that enables them to avoid some of the costs that come with traditional retail.
But the shift online of Arcadia and Debenhams does not mean the physical store is dead. It was noticeable that Primark, the most adept operator of shops in the business, reported that when its stores have reopened after lockdowns, they have retained their market share.
“Business rates have been under review forever but there is no indication yet that the much-mooted fundamental review will make a difference”
Not all can say the same, however. If offline and multichannel as well as pureplay retail are to thrive, once again it has been made clear that business rates must urgently be reformed.
There can be little doubt that the burden of rates contributed to the demise of Arcadia and Debenhams. That same burden almost certainly put off other bidders that might have been keen to retain a greater bricks-and-mortar presence under their proposals, such as Frasers Group and Next.
Business rates have been under review forever but there is no indication yet that the much-mooted fundamental review will make a difference. There is not even any indication of whether relief will be extended beyond March, despite the possibility of months more in lockdown.
Asos will be a ‘good owner’ of the Topshop brand – it has strong ethical credentials and is a great entrepreneurial retail success story.
Boohoo, though mired in controversy over supplier factory conditions, shows signs of willingness to change. Its entrepreneurial track record of success should guarantee the Debenhams brand a future.
Both etailers have flourished as a result of a deep understanding of their customers and the ability to anticipate, drive and respond to the pace of change. That is something to celebrate.
But retailers that run bricks-and-mortar shops are increasingly forced to compete with one hand tied behind their backs. That is likely to mean more brands become online-only and have unwelcome consequences for town centres, communities and shoppers unless there is action soon.
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