From Boohoo snapping up Karen Millen to Sports Direct rescuing Jack Wills, a spate of acquisitions is changing the make-up of UK fashion retail.
When browsing the latest collections online or trying on clothes on the high street, the average shopper is unlikely to pay much attention to who owns their favourite fashion brands. But there has been a lot going on behind the scenes in retail in recent months.
The fashion sector has experienced a wave of consolidation in a series of high-profile acquisitions: Boohoo snapping up the online businesses of Karen Millen and Coast in August, Mike Ashley buying Jack Wills in the same month, and Oasis and Warehouse Group buying online-only menswear brand The Idle Man in September.
The reasons one retailer might acquire another are myriad and vary from business to business. An acquisition can grant access to a new store portfolio, a foot in a new market, a new consumer group, or complementary technology and logistics systems. But there is something these recent acquisitions all have in common: they speak volumes about the ways in which online and bricks-and-mortar retail are evolving.
Strife on the high street has created opportunity for cash-rich companies to take over distressed competitors with assets complementary to their own, or once-loved brands in need of resurrection. When seeking to acquire a new business, experts tell Drapers, they should assess whether the company can make money, whether its proposition is still relevant, and whether there are new markets or directions in which it could grow.
The high street is struggling, and retail as a whole is facing many challenges, among them declining footfall, changing customer expectations in relation to multichannel retail, increased operating costs and uncertainty over the impact of Brexit.
We’re not over the worst of it. There are opportunities ahead for acquisitive businesses
Former high street boss
Drapers’ latest Connected Consumer report into multichannel shopping habits shows a slow but steady decline in those who prefer to shop in store: from 50% of people last year to 48% this year. The drop is more marked among 18-to-24-year-olds – to 42% – suggesting footfall will continue to decline.
New figures from the Local Data Company released in September suggest there has been an acceleration in the number of shuttered stores. One in 10 shops on Britain’s high streets, shopping centres and retail parks were standing empty in the first half of 2019 – the highest level in five years.
“The number of acquisitions is definitely accelerating,” one former high street boss tells Drapers. “It’s been happening for a few years, but this year a combination of all sorts of factors – Brexit, cost prices going up, more customers shopping and returning online, rental leases becoming uncompetitive – have come together in a year where trade has been challenging.
“Some retailers simply haven’t been able to weather the challenges. That’s set to continue. The general feeling in the industry is that we’re not over the worst of it. There are opportunities ahead for acquisitive businesses.”
Jonathan De Mello, head of retail consultancy at property services company Harper Dennis Hobbs, explains. “What might be hot one year isn’t hot the next year, and that’s pervading all forms of retail.”
He adds that “there are a lot of bargains to be picked up”, because retailers facing declining sales still need to foot the bill for rising rents and business rates. “In that situation, it becomes untenable.”
Acquisitive retailers can leverage their existing infrastructure to make immediate cost savings, explains consultant Erika Vilkauls, who has previously led womenswear chains LK Bennett and East: “HR, IT, finance, logistics – acquisitive retailers already have this set up. When they acquire a competitor or a brand, they can ‘lose’ those functions and save a tremendous amount.”
However, being bought can also benefit the smaller company. After buying The Idle Man, Oasis and Warehouse boss Hash Ladha told Drapers earlier this year: “We have international, wholesale and third-party knowledge and relationships, so we can help scale smaller brands and utilise our group infrastructures, whether it be in distribution, IT, HR or finance. There is so much we can add to a business.”
Take what you need
The former high street boss adds that, when a business is bought out of administration, the purchaser can “restructure it in a way that suits their business model. They’re not buying the business per se – they’re buying the business aspects they find valuable.”
Boohoo, for example, bought only the intellectual property and online operations of Karen Millen and Coast. The bricks-and-mortar arm of the business failed to attract a buyer and collapsed. The administrator has since closed all the stores and cut an estimated 1,000 jobs.
After purchasing another business, the first thing any management team will do is look strategically at all elements of both operations – from customer service to warehousing – to establish which are strongest. This bid to create efficencies often leads to redundancies, which can dent morale among existing staff.
The consolidation of retailers can also mean there are fewer positions for senior talent across the wider market, which has the potential to result in a brain drain at the top of the UK industry.
“There are fewer [fashion retail] jobs, certainly at senior level,” the former high street boss says. “As a result, people reinvent themselves, or go to different geographies, or move into other industries.”
Vilkauls adds: “UK talent is always required in other countries, and those at a pivotal point in their career may well choose to take their talent elsewhere. It’s hard to find a role here, but it’s not the same in the Middle East, Australia and Russia.”
Acquisitions can also help retailers to target a new customer base. Boohoo’s purchase of Karen Millen and Coast could be seen as a surprising choice, as the two labels’ premium proposition is markedly different from Boohoo’s existing stable of brands, which includes fast fashion labels Nasty Gal, MissPap and PrettyLittleThing. But Boohoo is future-proofing itself by giving its customers brands to graduate to when they no longer want value fashion.
After the purchase, Boohoo chief executive John Lyttle told Drapers: “[Our brands] are all young fashion, up to 30 years. We have proven very successful in that sector and have seen clearly that customers come to us, shop with us, and leave at a certain age. We have been looking for a brand we can transition these customers on to.” (This article’s lead image, with Boohoo in centre and Karen Millen and Coast left and right, shows the contrast in the brands’ approaches.)
Keep customers happy
Boohoo Group will benefit from having Karen Millen and Coast in its stable, but whether consumers know or care who ultimately owns their favourite brands is another question that retailers need to consider when acquiring and revamping a new business.
Will The Idle Man shoppers care that the brand has “sold out” to a bigger group? Will Karen Millen fans be put off by the fact their go-to label is now owned by a fast fashion giant? Will Jack Wills shoppers be given pause by the fact their favourite jumper and gilet brand is now owned by controversial retail tycoon Mike Ashley?
What does have an impact is when people see a brand start to change
Chana Baram, Mintel
Probably not, analysts say – unless the proposition changes dramatically. For the regular fashion shopper, what matters most is price, style, and quality.
Mintel analyst Chana Baram says the average consumer is unlikely to be aware of deals going on behind the scenes, but warns that a consumer will shun a brand if the quality dips or if it becomes widely known that the business behaves in a way the consumer perceives to be unethical.
“The average person on the street might not fully be aware that Sports Direct has bought Jack Wills [for example], so it’s very difficult to say whether there will be an impact just because of the acquisition,” she says. “What we do see is sometimes – what does have an impact – is when people see a brand start to change.”
In particular, she says, there can be an impact if consumers perceive a brand “to have been diluted”: “Karen Millen and Coast [have] very different targets from the average Boohoo shoppers. So it really depends where they take the brands – and that is really what impacts the consumer decision.”
Boohoo appears to be aware of this risk: executive director Carol Kane told Drapers that it would “retain the brands’ DNA” and the offer would “not be very different”.
Maintaining brand identity is perhaps the most visible challenge when fashion businesses are bought, and the one shoppers are most likely to pay attention to. But any takeover also demands complex decision-making about staffing levels, logistics and making efficiencies. Nonetheless, clever acquisitions can bring new revenue streams and a wider customer base. Fashion retail’s acquisition spree seems unlikely to slow down any time soon.