Missguided suffered a dramatic fall from grace when profits crumbled in 2017. Founder and CEO Nitin Passi reveals the drastic action he took to turn the etailer round.
In January 2018, Nitin Passi returned from his Christmas holidays to a sombre situation at womenswear etailer Missguided, the business he founded nine years before. Once the darling of the fast fashion scene, with two glittering retail stores, legions of devoted shoppers and sales of £206m in the year to March 2017, Missguided’s fortunes had changed rapidly.
For the 53 weeks to 1 April 2018, on sales of £216m, it reported an operating loss before exceptional items of £37.7m, an EBITDA loss of £26.5m and a £46.7m loss after tax.
“I didn’t know if we had enough money to run,” says Passi. “We realised we needed to start taking action, otherwise we weren’t going to be able to pay our employees.” For most of 2018, the once bold retailer went quiet as it implemented reforms aimed at catapulting it back into the black.
For the year to 31 March 2019, Passi says Missguided achieved this: EBITDA returned to growth, at £3.5m. It also dramatically reduced its loss after tax to £4m.
In pursuit of this turnaround, Passi reassessed his relationships with suppliers, cut back on marketing, reshaped the board, and closed one of Missguided’s stores. He is now seeking overseas growth, refining the idea of the brand’s target customer and focusing tightly on shorter product lead times to excel in Missguided’s fast fashion niche.
One year of hell
In November 2019, when Drapers meets Passi at The Arts Club in London’s Mayfair, he is feeling positive about Missguided’s future: “I had eight years of honeymoon, one year of hell, one year of reset, and now I’m really confident about the future.”
In the latter part of 2019, the business started to reinvest. Passi says ecommerce sales in the UK have returned to double-digit growth, and “both the top line and bottom line” of the business are increasing. He is anticipating a turnover of £200m for 2019/20, and EBITDA of more than £4.5m.
All our wounds were self-inflicted. For me, it was a very humbling experience
Missguided operates in a notoriously crowded market. Since it was founded in 2009, rivals such as PrettyLittleThing, In The Style and, most recently in 2017, I Saw It First have entered the space to lure away Missguided’s customers. The Missguided turnaround may be under way but it will by no means be plain sailing.
Passi is clearly bruised by Missguided’s misfortunes: “All our wounds were self-inflicted. For me, it was a very humbling experience.” He blames “poor control” for a situation that led things to spiral.
“The business had grown huge,” he says “Everything we touched turned to gold. I put a big team around me, I put a lot of expense in the business. We consumed too much cash too quickly and we didn’t have the right people in the right roles.”
A glitzy Salford head office opening in 2015 and two glittering retail stores – one 20,000 sq ft at Westfield Stratford City and the other 16,200 sq ft in Bluewater – ate up a huge amount of cash.
An industry insider says Missguided took its eye off the ball as a result of “complacency and overconfidence”: “It was wasting time and money on retail stores while Boohoo [Group was] plotting to steal its market with [its brand] PrettyLittleThing.”
The Westfield store closed in January 2018, just 18 months after a high-profile opening. The Bluewater store remains open and Passi says that, while it is not a runaway success, it is not losing money.
However, he says the “killer” was poor control of product: “We operate in fast fashion: we have to turn our stock in six weeks. We weren’t clearing stock as quickly as we should have, and as a result our customer was seeing poor stock online or we were regurgitating old stock in order to clear it.”
Once the reality of the situation became clear, Missguided took action immediately: implementing a redundancy programme that led to around 70 of the 420-strong team leaving in early 2018, and pulling back almost entirely from marketing spend. Today, there are around 350 people working at Missguided’s headquarters in Manchester.
Passi says: “What we had done is just throw people at problems as we grew so quickly, rather than looking at the best way and most efficient way of working something.”
Passi appointed Andy Bond, former CEO of Pepkor, the South African owner of value retailer Pep & Co, as chairman in December 2018. He helped Passi to rebuild a slimmed-down board based around new roles created since 2018: chief financial officer, chief product officer, chief digital officer and chief operating officer.
“I’d never had anyone in Missguided who had that level of business experience,” says Passi. “He’s been a great aid to me, and with Andy’s help we have shaped and moulded the new board.”
The business decided to focus on rebuilding the Missguided brand, and away from burgeoning menswear label Mennace, which Passi launched in 2017. Mennace still exists, but is on the back-burner until the business is in a position to reinvest.
The freeze on marketing spend was a more dramatic measure for a brand known for its bold campaigns – which, at their height, featured supermodel Jourdan Dunn and nonagenarian influencer Baddie Winkle.
Marketing spend was cut by around 30% and reserved solely for digital, as it was the easiest place to directly measure return on investment. The only other campaign for 2018 was a sponsorship of the reality TV show Love Island.
“We need to be part of key cultural moments for our target customer,” says Passi. “Love Island is a key cultural moment. We need to be part of that conversation, whether it’s what we’re talking about on social or talking about our products and ‘get the looks’.”
Missguided’s approach to stock also underwent a transformation, and returned to the fast-fashion ethos that fuelled its growth in the first place.
“It’s about testing, reacting and maximising,” Passi says. “When something works you maximise it and get it back [in stock] as quickly as you can. When it doesn’t work, you [mark] it down and get rid of it fast. It’s the discipline of buying the right amount of stock and clearing stock if it’s not working. It’s merchandising 101, and we just weren’t slick enough with it before.”
Missguided is now constantly working to improve efficiency in its supply chain and reduce turnaround time while retaining quality. It has shaken up how it works with suppliers, focusing on both profitability and transparency. The business stopped working with agents in 2018 to improve margins, and it also reduced the number of UK suppliers that it works with – from 40 to just five.
This enabled Missguided to have more knowledge of its own supply chain, and the business is working hard to ensure conditions in their factories are good – working with the Ethical Trade Initiative and setting up its own team to ensure the factories meet its ethical standards.
“We use those five in a much more meaningful way,” says Passi. “We have much more transparency of what’s happening, how, when and where it’s being made.”
UK suppliers account for around 30% of Missguided’s production, and other key sourcing countries include China and Pakistan.
The etailer has now improved its product margins “significantly” year on year, says Passi: “We are now showing our customers the freshest, newest stock and turning it really, really quickly.”
Newness on site is one thing, but Emily Salter, associate analyst at GlobalData, observes that Missguided must find itself a USP in a crowded category: “They had a niche, but it’s the same niche as everyone else [now]. They have done a lot of things that aren’t unique, and they need to really find a brand identity.”
As such, Passi says that the brand is redefining its style to stand out in the market: “Wind back two years ago, we were all about rainbows, unicorns, fluffy pinks, ’LOLs’ and ‘TTYLs’. We have moved away from that. We target ages 16 to 29, and we are absolutely alienating anyone above the age of 22 with that [old] style.”
He also admits that the need to move away from the fizzy pink brand identity once synonymous with Missguided was in part spurred by a certain competitor’s success with the look. While he does not name names, Boohoo-owned competitor PrettyLittleThing is the obvious candidate. Missguided needed a new look.
“Our latest campaign is still bold and still a bit tongue in cheek, but this girl is a bit more cool, fashionable, bit more authentic, a bit more credible,” he says.
Leading the way
Alongside a more sophisticated brand identity, Missguided is seeking to become a trendsetter, rather than a trend follower.
“What I wanted to push more was how we dictate trends. How we land trends earlier and with conviction,” he says. “We’re definitely pushing the design element more, making sure we can be first to market and control the trends.”
As the changes the business has made begin to bear fruit, it is now looking ahead to future growth. Early moves towards reinvestment have returned spend to above-the-line marketing, which includes an out-of-home campaign in London and a TV advert over Christmas.
The brand is also planning to release more collaborations. Passi describes these as “very important” for its customer. Past collaborations have included working with illustrator Hayden Williams and influencer Jordan Lipscombe, and a current collaboration is running with Playboy.
“We’re not spending as aggressively we could be,” says Passi. “But we want to walk before we fly again.”
Next year, Passi plans to ramp up investment, and is seeking to increase overseas sales.
Although the UK stores have proved more burden than boost, and there are no plans to open more, the international picture is quite different. In January 2019, the brand took its first steps with international stores, signing a franchise agreement with retail group Azadea in the Middle East that will result in 30 stores across the region in the next five years. A deal in Vietnam led to the opening of a store in Ho Chi Minh City in May, and further franchise contracts have been signed for stores in Israel, Armenia, Azerbaijan, Georgia and Malta.
Currently, the international business makes up around 35% of all sales.
Beyond franchise opportunities, a big focus for 2020 is direct to consumer in the US. In 2018/19, US ecommerce accounted for around 20% of total sales. When Drapers meets Passi, he has just returned from Los Angeles, having picked up the keys to Missguided’s first-ever US office. Set to open in January, it will house a team of four and act as a brand hub, as Missguided dials up marketing, social media and influencer activity. Passi says that next year Missguided will invest at least 10 times more into the market than it has ever done before.
“The US is a market we’ve managed to build to be an over £25m business without really focusing massively on it,” he says. “I see the US as our next big market.”
Closer to home, the brand is seeking to increase its wholesale profile. It is currently stocked by 12 retailers, including Asos and Zalando, and wholesale makes up just over 20% of sales. Wholesale revenue for the year to 31 March 2019 was £33m and for the current year is expected to grow to around £40m.
Passi sees the channel as a good way to increase brand awareness: “In this day and age, we have to be a bit agnostic as to where the customer wants to buy the product.
“We need to be in the right places, but at the same time we don’t want to it in every single door. We turn down more wholesale customers than we allow in.”
The market is competitive, but we thrive off that. In 2020 we’re going back to war
Although these opportunities have potential, Missguided must be careful not to take its eye off the ball in its key online market in the UK – this is something Passi is acutely aware of.
“Our core focus for the business is ecommerce,” he says. “Wholesale and franchise are secondary and tertiary.”
He continues: “When we went into retail, for example, that changed some of our processes. We are now making all our processes with only ecommerce in mind. We need to be the slickest, fastest, most efficient ecommerce retailer.”
Perfecting Missguided’s online offer has hinged on enhancing the business’s processing efficiency, in both digital systems and decision making, to increase speed and agility in the business.
The fall of Missguided is a cautionary tale for the fast fashion world – a high-flying retailer that became a victim of its own success. Passi himself admits that if the business had been smaller when it ran into difficulties, it simply would not have survived.
With new, nimble competitors appearing all the time, Missguided must be at the top of its game, but Passi is bullish: “The market is competitive, but we thrive off that. The business has definitely been reset. In 2020 we’re going back to war.”
Although its turnaround seems impressive, Missguided has a way to go, and seeking US expansion so soon is ambitious. As Passi says, fast fashion is a battlefield, and Missguided must retain the laser-like focus on agility and customer satisfaction that drove its early success to secure its future.