With the purchase of Karen Millen and Coast, Boohoo Group has expanded its offering beyond fast fashion.
Following the purchase of fast fashion etailer MissPap in March, Boohoo Group bought Karen Millen and Coast’s intellectual property and online businesses for £18.2m last week. But was the group simply taking an opportunity to fill a gap in its brand roster, which also includes PrettyLittleThing and Nasty Gal, or is this the first step in a challenge to its retail rivals?
Boohoo chief executive John Lyttle told Drapers that Karen Millen and Coast were too good an opportunity to pass up: “Retail is quite difficult at the moment. This one came across the table, and they are really well-known brands. Karen Millen is known on the international circuit. We like that. We felt there were improvements in product and pricing [to be made] and felt very strongly that it could be a good partner in the group for us.”
He added that the brands will open the group to a new customer segment: “[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. The post-twenties and -thirties fashion market is not really serviced very well.”
Obviously, everything [at Karen Millen] went into administration but we were only keen on the online platform
John Lyttle, Boohoo Group
The appointment of administrator Deloitte to Karen Millen and Coast on 6 August has put 1,100 jobs at risk, as 32 stores and 117 concessions across department stores House of Fraser and Debenhams are set to close.
Lyttle is clear that, even though Boohoo has acquired Karen Millen and Coast’s intellectual property, the group has no plans to step away from its online-only strategy: “We are an online pureplay. That’s our expertise. Obviously, everything [at Karen Millen] went into administration but we were only keen on the online platform. Our warehouses are set up for pickers and packers, not picking store orders.”
Boohoo has taken on 123 Karen Millen and Coast staff who will be integrated into the Boohoo stable.
Lyttle said the retained Karen Millen staff can flourish now the brand is on a firmer financial footing: “123 Karen Millen and Coast staff have moved over, so we are clearly bringing a lot of experience in. That’s a big plus for us.
“We are a strong group and trading well, and they would have had a lot of restrictions [as the business was in difficulty before the purchase]. We have the resources in supply chain and logistics, and can allow these guys to focus on brand and product.”
It’s all very logical, but where it ends up it’s hard to say
Retail analyst Nick Bubb
Boohoo Group certainly has the capital to expand. In its latest results, for the three months to 31 May, sales were up 27% to £123.5m at Boohoo; 42% to £112.1m at PrettyLittleThing; and 153% to £18.2m at Nasty Gal. The group expects revenues to rise by up to 30% by the end of the financial year.
Retail analyst Nick Bubb believes Boohoo has made a savvy business decision, as Karen Millen gives the group a whole new target market: “The group is firing on all cylinders at present, so it’s an opportunistic move. It’s done very well with other acquisitions such as Nasty Gal and, more recently, MissPap, and can see the potential to develop other complementary brands, and apply its sourcing and marketing skills.
“They may lose a bit of the existing business through the disappearance of click and collect [once stores close], but they will more than make that up by targeting new customers. It’s all very logical, but where it ends up it’s hard to say: if the Karen Millen/Coast decision works out, then no doubt there will be more acquisitions of online brands, maybe in beauty as well as in fashion.”
Convincing Karen Millen suppliers that the new regime will deliver may be a tougher prospect. One supplier to both Coast and Karen Millen told Drapers that he will refuse to work with the new owners: “We will not continue to supply [Karen Millen]. The supply base is wary [of retailers] in the current climate because we know it’s a moving target and we have no control. It’s about trust.
“The price architecture of Boohoo won’t work for the supply base for Karen Millen. The Boohoo customer is a 16-to-18-year-old who is buying at the cheap end of disposable fashion. She is not a Karen Millen customer.
“This will also have a huge effect on Debenhams and HoF, as they will have lots of empty space to fill [after the closure of Karen Millen and Coast].”
Boohoo is saying, ‘We are not just a pureplay fast fashion house. We have ambitions’
Daniel Bobroff, Coded Futures
Lyttle said Boohoo intends to keep the current Karen Millen supplier base, as well as bringing on some new suppliers. The group is also aiming to speed up the supply chain process for the brands to bring them more in line with the wider group, which produces in “days and weeks” rather than months.
“Consumer habits and shopping habits are changing a lot,” he explained. “You’ve got to be as flexible as possible in your supply chain. A garment takes the same amount of time to make [whatever quality] it is. It’s the process around that which takes time. It’s about getting to the making stage more quickly.”
Having snapped up Karen Millen, Coast and MissPap, as well as fast fashion brands Pretty-LittleThing and Nasty Gal, which it bought in December 2016 and February 2017 respectively, Boohoo appears to be building an online empire.
Daniel Bobroff, founder of innovation agency Coded Futures, said Boohoo is now considered genuine competition for ecommerce giants such as Asos: “Boohoo is saying, ‘We are not just a pureplay fast fashion house. We have ambitions,’ and now it has a more premium audience that it can apply its successful formula to.
“Karen Millen is an established, loved, potentially international brand that has cachet, but has been mismanaged. We’ve seen Sports Direct try a similar strategy of hoovering up [retail] casualties because there’s value in these brands.”
Mike Branney, co-founder and managing director of fast fashion etailer Oh Polly, agreed: “On the surface it seems like an unexpected decision for Boohoo, but it obviously has a lot of cash to spend on taking risks.
“It seems to be focused on buying a lot of retailers, which gives the impression that it sees itself as the next Arcadia Group.”
As to future acquisitions for the group, Lyttle keeps his cards close to his chest, and said the business is focused on the job at hand: “Our strategy is to get Karen Millen and Coast relaunched for early October, to coincide with Black Friday, Cyber Monday and Christmas.
“Do we have a target number of brands we want to operate? No, let’s integrate Karen Millen and prove we can deliver on those first.”
Boohoo Group saw an opportunity to expand beyond the market it serves and quickly took advantage, but it will have to establish Karen Millen and Coast as online pureplays with premium price points.
The Drapers Verdict
The acquisition of Karen Millen and Coast is a turning point for Boohoo in many respects. It marks a venture into a part of the industry in which it has little experience, and will pit the sales tactics of fast fashion against the practices of a premium brand. The snap purchase is a calculated risk for the group, but one a retailer with healthy revenues can afford.
The loss of bricks-and-mortar stores from the UK high street is arguably a seminal moment for retail this decade. The fashion sector will be keen to see just what Boohoo does in the coming months. If it revives Karen Millen as an online pureplay, then it could shape future strategy for many more retailers in years to come.