Private equity firm 3i is rumoured to be selling Hobbs for £80m. Drapers looks at the opportunities and challenges ahead for the premium brand.
Chief executive Meg Lustman has been fashioning a turnaround at Hobbs since she joined in 2014 from John Lewis, bringing with her a clearer focus on workwear, occasionwear and smart casual styles, expanding the range of trans-seasonal pieces on offer and driving full-price sales.
Alongside its 55 UK stores and concessions at John Lewis and House of Fraser, Hobbs has a growing presence overseas. It entered the German market in March last year through concessions in Wöhrl and SinnLeffers department stores, debuting on Berlin-based etailer Zalando a couple of months later. The five Bloomingdale’s concessions it opened in 2014 became profitable in 2015 and Lustman labelled the retailer’s US expansion plans as a “big success”.
Strong brand recognition
The Duchess of Cambridge has frequently been photographed wearing Hobbs product, and it is frequently described as one of her favourite brands, reinforcing Hobbs’ status as a good-quality high street staple with a traditional British feel. When Marilyn Anselm founded the company in 1981, she named it after her favourite brand of horse box to reflect the English countryside vibe of the products. The brand’s reputation for smart, well-made womenswear has encouraged customer loyalty over the years.
Despite Lustman’s efforts to refocus the brand, turnover at Hobbs fell 5.7% in the year to 30 January 2016. EBITDA rose by 18% to £7.7m and margins improved as the drive on full-price product paid off. However, it stayed quiet about its pre-tax profit/loss figures.
The fallout from Britain’s decision to leave the European Union has created economic uncertainty for the majority of British retailers and Hobbs is no exception. However, the business’s international arm could help it weather any potential storms in the UK market. Lustman seems up for the challenge, arguing international expansion has become more attractive since the vote and telling Drapers at the beginning of last year that businesses “will need to be agile with their technologies and their locations, to capitalise on opportunities for expansion at home and abroad”.
Many mid-market high street players are waking up to the dangers of discounting and following similar strategies of focusing on full-price sales to boost margins. The top end of the high street is a crowded place to be, and as independent retail analyst Richard Hyman points out, Hobbs faces competition from Jaeger, Jigsaw, Phase Eight and even Marks & Spencer. Jigsaw, for example, has taken a strong stance against discounting, and its Christmas sales increased by 10% year on year during the five weeks to 31 December 2016.
Hobbs’ retail prices range from £25 for a basic jersey top to £299 for outerwear. It will have to increase its brand value to justify its pricing and compete with other retailers.
The Drapers Verdict
Any final decision from a potential buyer would likely rest on their faith in Lustman’s strategy, which has yet to run its course. The challenges of Brexit will prove difficult, but not necessarily any more so than they will for any other UK retailers. A new owner would therefore be taking on a considered risk, but also a well-respected brand with a host of loyal customers.