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Comment: Why New Look was an attractive investment opportunity

Anusha Couttigane, fashion consultant at retail research firm Conlumino, dissects today’s news that South African billionaire Christo Wiese has bought New Look in a deal valued at £1.9bn.

ON THE SALE

This is strong evidence that the operational feats New Look has accomplished over the past 18 months, especially in ecommerce, have gone a long way toward building the impression of New Look as a viable business opportunity. Its ecommerce infrastructure in particular helps to future-proof the company and this, combined with its profit record, has made it a more attractive proposition for a buyout.

ON THE FINANCES

If the core running costs of the business were to be reviewed, I would think that looking as its supporting real estate would have a role to play. Earlier this month it was revealed Tritax Big Box was expected to buy one of New Look’s distribution centres – one New Look had only recently invested in extending, signifying its commitment to the estate as an integral part of its distribution infrastructure. It is possible we could see similar moves across New Look’s logistical operations that see New Look retain the use of vital facilities while minimising overheads by stripping out direct responsibility for running costs. I think it’s also fair to say there are areas which have seen high investment in recent years – such as ecommerce – that are already seeing strong traction and represent one-off costs.

New Look has re-asserted its commitment to expanding in areas such as menswear. However, if Christo Wiese intends to align the priorities of both Pep&Co and New Look, this could see plans for secondary target markets decelerate, reducing anticipated short-term costs. That noted New Look is also pursuing rapid global expansion, especially in China, and this will continue to incur costs. Yet Wiese’s clothing empire already reaches a number of international territories and the expertise of its new owner, together with New Look’s growth and profit prospects, could help facilitate the renegotiation of its debt in view of forecasted performance.

ON THE OWNER

Given its core leadership will remain with the business, this suggests New Look’s plans are unlikely to change dramatically in the short term. Anders Kristiansen, together with the CFO and CCO of the company, has always been vocal about New Look’s plans for expansion, e.g. product development around menswear and pursuing international opportunities.

The prospect of including a pre-conceived strategy, together with the executives who developed it, may even have encouraged the sale, as it means Christo Wiese is getting the whole package, composed of an internationally recognisable brand and a leadership body that knows what it is doing, as opposed to a floundering organisation that requires a lot of hard work to revamp it.

Given that Christo Wiese is involved in several other enterprises, this is a far more convenient solution as New Look’s team will continue to be committed to the business, enabling him to get on with his other ventures. As to the possibility of him looking to build a monopoly – I do think we’re a long way off from that, despite the existence of Pep&Co in other forms (namely Pepco) around the world.

There is a lot of competition in the value market. What is interesting, however, is the distinctive definition of New Look’s target market of under 35s, combined with Pep&Co’s ambition to attract a largely young mum following. There is certainly opportunity in this arena, especially in the UK, which underwent a baby boom during the recession.

We don’t know how much interaction New Look will have with Pep&Co from a consumer perspective, or, indeed, whether there will be any linkage at all. Yet given the correlation between the target markets of the two brands, I think it is more plausible that Wiese will look to consolidate his share of the value clothing market specifically targeted at females under 30, as opposed to the value market as a whole, which is a much bigger field to plough.  

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