Boohoo’s surprise acquisition of Karen Millen and Coast has left some people scratching their heads about what the online fast-fashion specialist expects to gain from the move.
In a frenzied acquisition marketplace, beleaguered Karen Millen and Coast have been snapped up by Boohoo. However, Boohoo is only taking on their online businesses and IP rights as part of a pre-pack administration deal.
The acquisition casts doubt over the jobs of 1,100 Karen Millen and Coast employees and will likely mean the closure of the two brands’ 30 stores and 175 concessions.
Deloitte restructuring partner Rob Harding, who oversaw the transaction, said “a sale of the whole business has not been deliverable” but Boohoo’s acquisition allows for “the survival of these iconic British brands through an online platform”.
Deloitte blames Karen Millen’s business failure on “high product and other cost inflation, decreasing footfall, weaker consumer confidence and a complex global operation in an increasingly competitive market”.
The very different propositions of Boohoo and Karen Millen and Coast have led some industry observers to question the deal.
GlobalData retail analyst Emily Salter is “surprised” by the move because of the different nature of the brands.
She says: “Karen Millen and Coast have a very different target demographic to all of the Boohoo brands. Even if they were aiming to target the shopper that is too old to shop at Boohoo, there is still quite a gap.
“I think they would have to drop the prices if they want Karen Millen and Coast to be brands that former Boohoo customers shop at when they are older. But if they did drop the prices it would devalue the prospect [of selling the brands on Boohoo’s platform] because they are known for having high-quality products that you have to pay more for, and that is part of their brand identity.”
Salter believes Karen Millen and Coast, whose core demographic is between 25 and 45, would have been a better fit for Edinburgh Woollen Mill tycoon Philip Day’s brand portfolio, which still has a high street presence and an older demographic than Boohoo.
Nevertheless, the acquisition of Karen Millen and Coast fits into Boohoo’s long-held ambition to be a multi-brand retailer.
It is understood Boohoo is keen to build the number of brands that it sells on its platform, but with own brands rather than emulating Asos’ model of hosting third-party labels.
The acquisitions will help Boohoo expand beyond its current core demographic of 16-to-24-year-olds.
“Shoppers are growing up and being considerate about the way they buy things and want to wear things more than once”
Catherine Shuttleworth, Savvy
Retail and shopper marketing agency Savvy chief executive Catherine Shuttleworth believes the acquisition is smart because both Karen Millen and Coast are “well-established brands and quite desirable for women of 25-plus”.
“Because the Boohoo customer enters at such an early age it will be hard to keep hold of those shoppers once they are past 25,” she adds. “Over-25s are really high spenders on clothing and fashion, particularly as they are not buying houses as early as they used to do.” Karen Millen and Coast’s occasionwear strengths are likely to appeal to such consumers.
While surprised by the deal, Salter acknowledges that Karen Millen and Coast could work as pureplay brands that extend Boohoo’s reach. “There are not very many online pureplays targeting slightly older consumers; there are Sosandar and then River Island’s Harpenne, which are both quite new, but apart from that most are multichannel retailers,” she says.
Shuttleworth shares Salter’s concerns about the difference in the brands’ price propositions.
“At the moment, paying more than £40 for a dress is a big ask for a Boohoo shopper,” says Shuttleworth. “How do they keep the Karen Millen and Coast brands differentiated and allow them to carry a price premium? To pull them down into Boohoo’s pricing would be an error. They will have to level some pricing off, but lift it away from the Boohoo pricing model.”
Salter is also concerned that the occasionwear nature of Coast and Karen Millen product could cause challenges for Boohoo after dumping the brands’ stores and concessions.
She says: “With occasionwear and higher price points it is important that people can try products on – you might try on five dresses and then come out with one. If you are ordering online you will end up ordering lots and returning a high quantity, which is obviously increasing costs to the business. Or you will just be put off from ordering altogether.”
However, Shuttleworth believes the acquisitions are relatively low risk because the lack of a store footprint means the deal is a “steal”. Boohoo is paying £18.2m for both businesses, funded from existing cash resources. In the most recent financial year to February 2019, unaudited accounts show direct online sales from the websites of Karen Millen and Coast totalled £28.4m.
“It is low-risk for Boohoo because it is buying them out of administration and not taking any shops on,” says Shuttleworth. “If they get absorbed into the Boohoo family, suddenly the supply chain savings will be phenomenal and they can start hitting a wider audience because one of the main things that Boohoo is spectacular at is delivery, both in getting products to shoppers and getting them returned.”
Beyond fast fashion
One other major driving factor of Boohoo buying Karen Millen and Coast could be a diversification beyond reliance on fast fashion, according to Shuttleworth.
Fast fashion is Boohoo’s greatest strength and has been the driver of its growth – but increasing environmental concerns could hamper its long-term growth prospects.
Boohoo and rival Missguided were named and shamed as two of the least-sustainable fashion brands in the UK in a report by Parliament’s Environmental Audit Committee.
“Shoppers are growing up and getting a lot more woke and being considerate about the way they buy things and want to wear things more than once,” says Shuttleworth. “I wonder if Boohoo is a little more concerned about that. I think that is something on Boohoo’s agenda, but it would blow their business model out the water if they said that.”
What Boohoo has said publicly is that it believes Karen Millen and Coast are “renowned British brands” that will complement its “vision to lead the fashion ecommerce market globally”.
Boohoo already has a large international presence, selling into more than 50 international markets including Australia, France, Spain and the USA. There is no doubt there remains strong brand equity in both the Karen Millen and Coast names.
Boohoo claims Karen Millen is “known globally for creating beautifully crafted fashion for confident women who know their own style”. Meanwhile, Coast was founded in 1996 with the belief that “life is for living, fashion should be fun and dressing up is for every day”.
The question is whether Boohoo will be able to maintain the price premium and brand equity when selling the brands on its own platform, which is synonymous with cheap, fast fashion.
Based on Boohoo’s stellar success in the past, it would be foolish to bet against the Manchester-based retailer. In the notoriously tough UK retail environment that sunk the previous incarnations of Karen Millen and Coast, a lot will be riding on Boohoo’s increasingly broad church of brands’ ability to appeal to a global audience.