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Lipsy offers Next a fresh opportunity

Next’s acquisition of women’s young fashion brand Lipsy could signal the start of an attempt by the multiple to reconnect with younger shoppers.

This week, middle-market high street giant Next acquired women’s young fashion brand Lipsy for £17.4 million. The deal has raised eyebrows in the industry and sparked speculation that it could mark the beginning of a change in strategy for Next.

However, Next chief executive Simon Wolfson has been at pains to make clear that this relatively small acquisition does not signal a fresh direction for the business.

This is the first time Next has owned a fashion brand and is also the first time it will have an interest in a business with a wholesale operation. Wolfson says it intends to continue supplying Lipsy’s 400 UK stockists, headed by existing Lipsy managing director Jeremy Stakol.

Next bought the share capital in Lipsy for £14m and repaid loan notes of £3.4m. The brand was otherwise debt free, with sales of about £20m in the year to June.

Lipsy, Next says, will be run as a separate business within the Next Group. Lipsy products will not appear in Next stores . The brand will continue to sell via the Next Directory catalogue and website as well as in its online Brand Directory.

So if nothing looks set to change for Next or Lipsy apart from the pace of growth at Lipsy, what is the thinking behind this acquisition?

Those not looking for a major strategic reason for the acquisition claim Wolfson saw an opportunity to buy a small but fast-growing business and decided to take it. Next started edging its way into the young fashion market with the launch of its etail venture Brand Directory in February.

The site competes with Asos and Littlewoods, selling young fashion brands such as Firetrap and Gio-Goi alongside Lipsy.

One industry commentator said the Lipsy acquisition is no different from deals done by other mature high street businesses looking to grow sales in a saturated market.

He cited H&M’s acquisition in March of a 60% stake in Swedish fashion house Fabric Scandinavian, which owns the Weekday and Monki chains as well as denim brand Cheap Monday.

At the time, H&M chief executive Rolf Eriksen said the deal gave H&M the potential to fast-track the growth of the three brands.

Luca Solca, an analyst at financial management firm Bernstein, says:

“H&M bought Weekday and Monki in a market where it is mature. You can draw comparisons between H&M in Scandinavia and Next in the UK. There’s not a lot of growth left in the UK for Next, so it needs to invent or acquire new formats.

“There is a long way until Next becomes similar to [Spanish fashion group] Inditex but it already has a strong footprint with its own brand, so it needs to establish new growth elsewhere.”

Matthew McEachran, an analyst at Icelandic bank Kaupthing, agrees. He says: “This move highlight’s Next’s determination to get into the younger end of the market.”

The boss of one young fashion retailer adds: “The move into the young fashion market is a way for Next to re-engage with a different customer.”

Lipsy sells via high street retailers such as Topshop, with wholesale accounts in catalogues and on the internet with retailers such as Littlewoods, as well as its own website.

It also operates as an own-label high street supplier, which it will continue to do.Next will open its first Lipsy store in Brent Cross shopping centre in north London this month, and plans to open a few more stores in the UK this year, while also expanding the brand’s wholesale arm abroad.

Lipsy’s previous owners, husband and wife Jeremy and Marcelle Stakol, who had a 25% stake in the company after a management buyout deal in May last year, will remain with the business as managing director and design director respectively.

Stakol says: “Next can provide us with the infrastructure, sourcing, supply chain and logistics to grow the brand.”

The boss of one high street retailer sees it as a logical move: “It’s a good opportunity for Next to test the water and see if there is potential to grow by acquisition.”

Next has experimented with other retail concepts before, by launching discount chain Lime. However, the concept flopped and Next shut all 13 Lime stores in March this year.

So will Lipsy be a similar trial for Next? Will it evolve into a standalone business within the group or be sold for a profit once its potential has been realised? The answer is not clear. What is clear is that Next felt the Lipsy opportunity was too good to pass up.

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