Shop Direct’s turnaround is a big retail success story following a transformation in recent years.
Since boss Alex Baldock arrived in 2012, sales have risen, as have profits. In 2010/11, group operating losses totalled £240.2m. Last year, operating profits stood at £168.5m.
Over the past decade, the group has shifted from being a legacy catalogue retailer to an online pure-play, underpinned by financial services, with top-end technological capabilities.
Its personalisation is market-leading, while many of its top executives have been recruited from outside the retail comfort zone and come from consultancies and tech giants.
Power brand Very has been established and is thriving, driving 9% sales growth across the group over Christmas.
Sister brand Littlewoods is no longer growing but is now profitable, and management say they are comfortable with its role in the group.
A turnaround like that is no mean feat, so it is no surprise there has been speculation that Shop Direct could float or be sold with a mooted valuation of £2bn.
Shop Direct’s value
So, to what extent has Shop Direct been translated into a bankable asset in the eyes of fund managers and institutional investors?
Retail, particularly fashion retail at present, is anything but a safe bet in the eyes of the City.
“One needs to discriminate between the winners and losers, and 2017 will be just that – a year of winners and losers. I see no reason why someone wouldn’t look at Very with eager eyes”
Wayne Brown, Liberum
However, Liberum analyst Wayne Brown believes Shop Direct’s online prowess would make it an attractive investment.
“Things have been tricky for the mainstream incumbents,” he says.
“There is an understandable level of uncertainty, but my view is that the structural challenges that those retailers are finding tricky will not be mirrored or seen within stronger speciality clothing and online retailers.
“One needs to discriminate between the winners and losers, and 2017 will be just that – a year of winners and losers. I see no reason why someone wouldn’t look at Very with eager eyes.”
“There would definitely be an appetite [for a float],” asserts Peel Hunt’s John Stevenson. “The business has been transformed significantly over the last 10 years and is now a leading player in online and personalisation.”
Other options on the table
Surely all this means that Shop Direct is a shoo-in for an IPO?
Not so much, say some City observers.
They believe that owners the Barclay brothers’ preference for privacy may deter them from seeking a public listing, and that the mooted £2bn valuation may not be achievable.
“I don’t think [a float] will happen. I would be hugely surprised. I don’t think they’ll get the valuation they want”
“I don’t think [a float] will happen,” says one City banker. “I would be hugely surprised. I don’t think they’ll get the valuation they want.”
He maintains: “They are notoriously discreet. I doubt they would want the disclosure that going public entails. They just want to show potential buyers that they have another option, but a sale [rather than an IPO] is more likely.”
Peel Hunt’s Stevenson believes that the Barclays’ concern about their privacy need not prevent an IPO.
“They could stay in the background, they wouldn’t be fronting the deal,” he says. “They would appoint a wider PLC board to work with management.
“Even if they were non-executive directors, they wouldn’t have to take the public stage.”
PE or trade buyer?
If the Barclay brothers choose not to pursue an IPO, it is easy to imagine private equity waiting eagerly in the wings. But some observers believe that Shop Direct could face hurdles in that direction.
They point to its financial services arm, which is entwined with the rest of the business but represents a very different proposition for investors.
While Shop Direct offers credit-free options, the bulk of sales are transacted on credit – a style of doing business that is attracting increasing regulatory interest, which may deter some potential investors.
So perhaps a trade buyer is most likely.
“It needs a big corporate who can understand both sides of the business,” says one City source, although he thinks the list of contenders “might not be very long”.
While he says there would be City appetite for an IPO, Stevenson also believes that a trade sale is more likely because Shop Direct’s technological capabilities would be so tempting.
“Certainly there would be attraction to the ecommerce Very side,” he says. “The investment in that over the last few years would provide someone with quite a significant step-up in terms of online capability.”
Shop Direct declined to comment on the speculation about a sale or IPO. However, should it decide to press the button on seeking a deal, it looks as if appetite will be there.
- This article was originally publishedon February 6, 2017, when there was speculation about a sale or float of Shop Direct.