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.

Debenhams department store
Debenhams will henceforth only exist online
(Image credit: © Leon Neal/Getty Images)

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.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

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”.

Dr Matthew Partridge

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

Follow Matthew on Twitter: @DrMatthewPartri