Not many fashion retailers can badge themselves as truly global but could Topshop become just that?
Not many fashion retailers can badge themselves as truly global. Names like H&M, Zara and Gap spring to mind, but the brain starts smoking after that. You might argue that the internet has reduced the need to have a presence in every country, but ecommerce still represents less than 10% of annual retail sales on average, which shows how important it is to have a (controlled) physical presence in order to make a meaningful impression on a territory.
Of course, many British retailers have tried this and many have failed. Tesco’s decision to take on Wal-Mart in the US with its Fresh & Easy brand has ended up being an extremely costly failure, leading to a loss of more than £1bn after revealing it is likely to pull out this week. It also marks the group’s second withdrawal from an international market in less than a year, after it decided to pull out of Japan last August, having poured more than £250m into the venture and spending eight years trying to break into the local market.
By way of comparison, let’s fast forward to what’s been happening with Sir Philip Green and Topshop. The retailer, estimated to be worth £2bn, is driving an ambitious international expansion programme in America and Asia. The cynics will no doubt bemoan the sale of a 25% stake to an overseas investor or argue that this is just a deal to pay off debts. However, I’d prefer to focus on how this deal illustrates the strength of UK retail, highlighted by one of the world’s largest Private Equity funds (Leonard Green & Partners is thought to have $15bn of capital) that’s prepared to take a minority stake and leave Sir Philip very much in control.
The investment not only shows how much faith Leonard Green has in the brand, but also gives Sir Philip ample funds to continue his global domination, at least in retail terms. After opening Topshop outlets in cities such Sydney, Melbourne, Vancouver, New York, Chicago and Las Vegas, the company is planning to open a store in Los Angeles next spring, and possibly in China as well.
Sir Philip’s decision to accept this investment from Leonard Green is the perfect way of funding these activities – and a real masterstroke, as far as I can see. After all, he’s been able to sell a minority stake to a fund that’s in part responsible for the growth of J Crew, and yet will still maintain full control of the business, leaving him to re-adjust the balance sheet, ready for the next stage of development.
Sir Philip has often said that Arcadia, the holding company that owns both Topman and Topshop, should be regarded as a great British success story – and I would tend to agree. The fact that such a large investment firm is willing to stand by these brands speaks volumes about them – and will pave the way for Topshop and Topman to join a very small list of truly global retailers.
- Dan Coen, Director Zolfo Cooper. Twitter: @Coen_Dan