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

Has passive investing created a stockmarket bubble?
Sponsored

Has passive investing created a stockmarket bubble?

Over the past two decades, investors have been switching from buying actively managed investment funds to buying passive funds that simply track a mar…
28 Sep 2021
Why are people panicking about fuel shortages?
UK Economy

Why are people panicking about fuel shortages?

With huge queues forming at petrol stations around the country, Saloni Sardana looks at the reasons behind the fuel shortage and asks how long it's l…
28 Sep 2021
Why investors should beware of corporate waffle
Investment strategy

Why investors should beware of corporate waffle

When top executives try to retreat behind impenetrable jargon, investors should be very sceptical, says John Stepek.
28 Sep 2021
Ensign Group: profiting from US private care
Trading

Ensign Group: profiting from US private care

Nursing and care-home specialist Ensign Group should thrive as Americans age. Matthew Partridge picks the best way to play it.
28 Sep 2021

Most Popular

A nightmare 1970s scenario for investors is edging closer
Investment strategy

A nightmare 1970s scenario for investors is edging closer

Inflation need not be a worry unless it is driven by labour market shortages. Unfortunately, writes macroeconomist Philip Pilkington, that’s exactly w…
17 Sep 2021
What really causes inflation? Here’s what prices since 1970 tell us
Inflation

What really causes inflation? Here’s what prices since 1970 tell us

As UK inflation hits 3.2%, Dominic Frisby compares the cost of living 50 years ago with that of today, and explains how debt drives prices higher.
15 Sep 2021
The times may be changing, but don’t change how you invest
Small cap stocks

The times may be changing, but don’t change how you invest

We are living in strange times. But the basics of investing remain the same: buy fairly-priced stocks that can provide an income. And there are few be…
13 Sep 2021