The trouble with getting old, like me, is that you see history repeating itself.
What is somewhat surprising, though, is when that happens in the corporate world. Two recent transactions caught my eye in this regard – Sports Direct buying Jack Wills and Boohoo acquiring the online business of the Karen Millen and Coast brands.
There was an era in the 1990s when quoted retail groups such as Sears, the Burton Group and Kingfisher were treated by corporate analysts and investors with disdain bordering on contempt.
“With corporate indigestion from the last year’s acquisition of House of Fraser, why would you choose this moment to add another business?”
In the case of Sears, which owned Selfridges, Freemans, Miss Selfridge, Wallis, Warehouse, Olympus, numerous shoe brands and even William Hill, the refrain from the City went along the lines of: ‘If I want to invest in a department store, or a mail-order company, or a womenswear chain, or a sportswear retailer, or a chain of shoe shops, or a bookmaker, I’ll make that decision. I don’t need a Sears head office and its overhead to do that for me, as they don’t add any value.’
Consequently, all these long-established retail groups, which were mainly created through acquisitions, were eventually broken up or sold to private companies – the stock market’s view had prevailed.
Therefore, it is rather intriguing to see history repeat itself as we go back to the future.
In the case of Sports Direct, I find it rather difficult to see the logic of acquiring Jack Wills and how it fits with a group strategy. The original Sports Direct sportswear business is clearly still successful and very profitable. However, with significant corporate indigestion from the last year’s acquisition of House of Fraser, why would you choose this moment to add another business with all of its associated stores and people? Does the group really have the management resources to do both turnarounds at the same time?
House of Fraser on its own is an enormous undertaking. Flagship department stores in major cities can be extremely successful providing there is continual investment in the retail environment and the offer is refreshed – Selfridges and Harrods are world-leading examples.
However, replicating that experience and offer in 50 or more retail centres not only requires significant time and money, but it is unlikely to be economic outside, say, the top 20 locations.
“It will be vital for the Boohoo group to maintain clear differentiation between its brands”
On the other hand, the Boohoo acquisition of Karen Millen does make sense.
I remember when Karen Millen was introduced into the young fashion area on the ground floor in Selfridges in the mid-1990s. Although at the higher end price-wise for the brands in that part of the store, Karen Millen with its distinct and sassy point of view was extremely successful.
Karen Millen can complement the existing Boohoo brands by appealing to a slightly older customer who can afford a higher average selling price and is looking for a more premium product. Boohoo has already demonstrated an ability to develop additional online brands, with the creation of PrettyLittleThing and the acquisition of Nasty Gal.
However, it will be vital for the Boohoo group to maintain clear differentiation between its brands. Inditex, which includes Zara, Massimo Dutti, Bershka and Stradivarius, demonstrates best practice by having clearly defined product and store environments. By contrast, Arcadia has struggled to do this, and Miss Selfridge, Wallis and Warehouse are nowhere near as prominent as they once were.
In the online world, if for some reason a brand doesn’t work, then the costs of exiting are much less significant as there are no shop lease obligations and less staff.
So maybe it is OK to repeat history – but only if it fits a coherent strategy appropriate for the modern age.