Boohoo has just bought department-store chain Debenhams. By the time you read this Asos may well have bought Topshop. As the dust settles on those deals, people will be pointing out that it symbolises a changing of the guard in retailing, with the brash new internet-based companies snapping up some of the grandest, or at least in the case of Topshop, snazziest names in the business. That is true. But it symbolises something else as well, which may be more surprising, and may matter more in the medium term: the stars of the Aim market are starting to overtake the giants of the FTSE.
Two remarkable success stories
Boohoo is a remarkably successful business. Founded in 2006, it has swept up much of the fast-fashion market, with a range of different brands and imaginative marketing. It has revenues of close on £1bn a year and is now valued at £4.4bn. With the Debenhams brand, shorn of all the department stores that will now be closed, it can start moving into a more mature market, introducing itself to the mums of its core customers. Whether that works remains to be seen – but it would be hard to bet against a business that has come such a long way in a short space of time.
Asos is just as successful. Founded in 2000, over the last 20 years it has established itself as the leading online fashion retailer in the UK. It had sales of £2.5bn last year and profits of more than £25m. It already has a market value of close to £5bn, and if it makes a success of Topshop that will no doubt go even higher.
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Both deals will transform the way retailing works. The web companies are in the driving seat, and physical shops are now just brands, or a marketing tool for selling more stuff on the web. If the high street and retail malls survive at all, it may simply be as marketing machines for the likes of Asos and Boohoo.
Both Boohoo and Asos are traded on Aim, not the main market. But both are worth more than £4bn. Measured by market value, they should be in the FTSE already by now, or at the least very close to it. Nor are they alone. Aim is also home to plenty of other fast-growing companies – such as, for example, the drinks maker Fever-Tree, which is already worth £2.5bn. When Aim was established, the idea was that it would be a more lightly regulated home for new, expanding companies, often in technology. It would be a British version of the Nasdaq. For a long time, it didn’t come anywhere close to that. There weren’t many listings, and the few there were didn’t really go anywhere. In the last year that has really started to change.
The contrast with the FTSE is getting more painful all the time. It hosts very few growth businesses and is mostly a collection of declining oil giants, stagnant tobacco companies, banks that are struggling to keep up with technology, and retailers trying to figure out how to respond to the internet. That might start to change this year with some of the initial public offerings (IPOs) that are in the pipeline, as this column explored last week. If the likes of Checkout and Revolut come to the market, and bounce straight into the FTSE, then it will be a little more exciting.
Aim is where the action is
But Aim is already getting there. It is the place where you are more likely to find businesses that are expanding, exploring new markets, and generating exceptional returns for their share-holders. In many ways, the US has witnessed the same trend. Nasdaq has for years had a lot more zip than the S&P 500. Over the last decade, it became the index that people watched most closely, and the media quoted, as representative of the American economy.
True, there may be pressure to get those Aim companies to switch to the main market, but there are lots of regulatory obstacles to making that happen. Instead we might just have to get used to quoting Aim as the main UK index. It is a lot more representative of the fastest-growing parts of the British economy. It performs better too – and is a lot more fun to follow.
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