Debenhams sale heralds a revolution in retail

Boohoo and ASOS, hitherto considered online upstarts, are now hoovering up ailing high-street brands. Matthew Partridge reports.

There’s “another garage sale happening in UK retail”, says Andrea Felsted on Bloomberg. However, instead of traditional retail tycoons such as Mike Ashley, the buyers are the “online upstarts they tried for years to resist”. Online fashion store Boohoo Group is to buy the brand and website of struggling department store Debenhams for £55m. Meanwhile, its rival ASOS is in “exclusive talks” to acquire Topshop, Topman and Miss Selfridge, currently owned by Arcadia, for up to £300m. Both Boohoo and ASOS are only interested in the digital assets, such as the brand name and the websites. That implies yet “more store closures on... high streets”.

The fact that neither ASOS nor Boohoo want the “messy expensive stuff” such as stores or staff shows how the deal is a “changing of the guard”, says Ben Chapman in The Independent. Power is moving “from the analogue retail world to the digital”. While the proportion of sales carried out online has been rising for years, the pandemic has turned this into a “looming problem”, with retailers across the country forced to pay with “billions of pounds” in rent and bills for stores that were forced to shut. Meanwhile, their online-only rivals “have enjoyed a sales boost without the dead weight of stores with no customers”.

Poor management

It’s true that Covid-19 “has revved up shopping’s shift online”, which means that “weak, or hollowed-out” high-street brands “are keeling over at a terrific clip”, says Alistair Osborne in The Times. Still, Debenhams’ past and present owners deserve a lot of blame for the fact that Boohoo was able to snap up the store, once valued at £1.7bn, for just £55m – this is especially the case with the private-equity group that “extracted more than £1bn” through a “preposterous 35-year sale and leaseback on the stores” before floating the debt-laden firm in 2006. That all but guaranteed that it “bombed from day one” as a public company.

The idea of buying Debenhams in order to relaunch it as an online-only brand isn’t without risk, says Jonathan Eley in the Financial Times, especially given the failure of earlier attempts by other firms to reinvent other previously popular brands such as BHS and Woolworths. However, the strategy will help Boohoo expand into new categories “such as beauty, sportswear and homewares” and bring Debenhams’s “established fashion brands” on board. It will also increase Boohoo’s audience: Debenhams “is one of the top-ten retail websites in the UK, with 300 million visits and £400m of sales in the year to August 2020”.

And this isn’t the first high-street brand that Boohoo has bought up, says Sarah Butler in The Guardian. Last year it acquired Oasis, Warehouse, Karen Millen and Coast. Despite this spree, record profits, fuelled by a 40% jump in sales in the run-up to Christmas, mean that it has “plenty of money” to pull off similar deals. With many other high-street retailers in dire trouble, you can expect it to find “many more targets”. 

Recommended

What happened to Credit Suisse?
Economy

What happened to Credit Suisse?

UBS acquired Credit Suisse at £2.65bn on Sunday afternoon – significantly below its closing value on Friday, which was around £7bn. We take a look at …
20 Mar 2023
Can I avoid IHT by stuffing all my money into a pension?
Personal finance

Can I avoid IHT by stuffing all my money into a pension?

The ditching of the lifetime allowance could enable millions of pension savers to avoid inheritance tax. We explain how.
20 Mar 2023
Profit from the rise of shareholder activism in Japan’s small companies
Share tips

Profit from the rise of shareholder activism in Japan’s small companies

A professional investor tells us where he’d put his money. Daniel Lee, head ofJapan Research, AVI Japan Opportunity Trust, highlights three promising …
20 Mar 2023
When will interest rates go up?
UK Economy

When will interest rates go up?

The Bank of England has many things to consider ahead of its decision later this week.
20 Mar 2023

Most Popular

Government plans could see NS&I boost interest rates
Savings

Government plans could see NS&I boost interest rates

The government-backed bank has a new funding target, which could prompt it to boost the rates on its Premium Bonds, ISAs and bonds.
16 Mar 2023
Share tips of the week – 17 March
Investments

Share tips of the week – 17 March

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages
10 Mar 2023
How to make your child a tax-free millionaire by age 37
Investments

How to make your child a tax-free millionaire by age 37

Exclusive research for MoneyWeek reveals how funding an ISA and a pension for your child until age 18 could build up a seven-figure sum by the time th…
14 Mar 2023