LONDON — Online titans, including Asos, Boohoo and Next, are poised to change the face of the British high street as they jostle for control of ailing retailers struggling with expensive store estates and owner-managers who’ve failed to grasp the power, and potential, of e-commerce.
Not long ago, the might of the British high-street retailer was measured in store numbers, property portfolios, hot locations and adjacencies. But those numbers don’t really count anymore with stores dark due to COVID-19 and a pre-pandemic slowdown in footfall, onerous leases, rising rents and landlords demanding payments even though no one is shopping.
Today the power lies with data, agility, speed — and meeting the customer wherever they happen to be. Throughout lockdown, online giants have been outperforming physical retailers, and they’re only getting stronger.
On Monday, in the space of a few seconds, Boohoo said it was buying the down-and-out Debenhams department store chain for 55 million pounds — minus the store estate — while Asos confirmed its interest in taking over Topshop, Topman and Miss Selfridge, three formerly fizzy brands that fell on hard times as part of Sir Philip Green’s collapsed Arcadia Group.
Next, one of the few high-street retailers that have managed to juggle physical with digital to great effect, had been mooted as a frontrunner to buy Topshop, but pulled out last week, saying it was unable to meet the “price expectations” of the vendor. Although it has been around for decades, Next has also adapted nimbly with the times, becoming the U.K. distribution partner of Victoria’s Secret and Laura Ashley home, and using its formidable online platform to market and distribute both brands.
Tellingly, Mr. Brick-and-Mortar himself, Mike Ashley, was nowhere to be seen on Monday when the online giants were doing their deals. Instead, the pugnacious billionaire owner of Sports Direct and Frasers Group, who fought for years — unsuccessfully — to wrest control of Debenhams, and who made an 11th-hour bid to buy Arcadia, partly to needle his frenemy Philip Green, was feeling sorry for himself.
Frasers Group sent out a statement Monday afternoon complaining it had to close Jenners, the stunning Victorian-era department store in Edinburgh, Scotland, which it had turned into a Frasers store in 2005. Frasers said the store would close officially in May due to the inability to reach an agreement with the building’s owner, Anders Povlsen, to continue its tenancy.
A Frasers spokesperson said despite the global pandemic, numerous lockdowns and the turbulence caused for British retail, “the landlord hasn’t been able to work mutually on a fair agreement, therefore resulting in the loss of 200 jobs, and a vacant site for the foreseeable future with no immediate plans. Our commitment to our Frasers strategy remains, but landlords and retailers need to work together in a fair manner, especially when all stores are closed.”
The Danish billionaire Povlsen, one of Scotland’s biggest landowners, also controls the clothing chain Bestseller, and is a major shareholder in Asos and Zalando. He had, in 2019, revealed plans to refurbish the Jenners site, which he purchased in 2017 for a reported 53 million pounds, and turn it into a hotel and retail space.
The online hares will continue to race ahead of the high-street tortoises, using a combination of bricks, and clicks, to appeal to customers.
Jace Tyrrell of New West End Company, which lobbies for businesses around Oxford, Regent and Bond Streets, has long said that London’s historic shopping streets will, in the medium- to long-term, have “far fewer” physical retailers, and more experiential and concept stores, galleries, cafés and public spaces where people can dwell — and not necessarily shop.
“What’s left will be the very best in innovation and branding and I think there will be a real level of investment when we come through [the pandemic] — but we’re talking about a couple of years, not months,” he said in an interview last May.
The online retail giants are in pole position to make those changes happen.
Before the pandemic began, Boohoo was planning to open a physical space around Oxford Circus, near Topshop and Urban Outfitters. The retailer has not confirmed whether it will be a showroom, event space or experiential shop, and when it might be ready to open.
And imagine what Asos could do if it purchased Topshop, aside from improving the retailer’s e-commerce?
Even if Asos didn’t take over the Oxford Street flagship (Arcadia’s properties are being sold separately from the retail brands), it could still create an experiential destination in central London — or every major city worldwide — similar to what Burberry has done in Shenzhen, China.
Last summer, Burberry opened a 5,800-square-foot store created in collaboration with WeChat’s owner, Tencent. The store asks shoppers to press their WeChat accounts into action as they game their way around, making virtual, and real life, discoveries.
As they plot and strategize about the future of retail, these online giants will use their acquisitions as a way of growing audiences, gathering data and grabbing more market share.
Asos has described Topshop and its sister retailers as “a compelling opportunity to acquire strong brands that resonate well with its customer base.” In a report on Monday, Bernstein said Topshop would be a “huge market share win” for Asos — if a deal goes through.
Boohoo, which has already snapped up the brands and IP of struggling retailers such as Karen Millen, Warehouse and Oasis, said Monday it was buying Debenhams for a variety of reasons.
It pointed to Debenhams’ almost 300 million U.K. website visits per annum, and the fact that it’s a top 10 retail website in the U.K. by traffic.
In the year to August 2020, Debenhams’ online business generated net revenues of around 400 million pounds, according to Jefferies, which gave the deal a thumbs-up.
The bank said the Debenhams platform will provide Boohoo with “substantial scale and a low-risk route into building an online marketplace and entering the strategically significant prestige beauty market.”
Boohoo said the deal represents “a fantastic opportunity” to grow its “target, addressable market and increase the share of wallet” with a low-risk operating model that is complementary to its existing direct-to-consumer, multibrand platform.
It intends to “rebuild and relaunch” the Debenhams platform, and grow into categories including beauty, sport and homeware, and wants to create the U.K.’s “largest marketplace across fashion, beauty, sport and homeware.”
The group said it will continue to operate the beauty wholesale model, “but will also look to add new brands via the marketplace model.” Meanwhile, Debenhams’ in-house fashion brands will be absorbed into Boohoo’s current brand portfolio and sold online.
In its report, Bernstein noted that beauty is a growing category for all of the high-street retailers it covers, especially post-COVID-19. “Asos and Zalando have particularly expressed their interest in the beauty space before, while Next has long had a foot in the market with Lipsy,” the bank said.
Bernstein also argued that there are more mergers and acquisitions to come from Boohoo, which has been working to clean up its manufacturing and supply chain after a sweatshop scandal last summer.
The bank said with a “robust” 300 million pounds-plus cash position even after the Debenhams deal, “Boohoo is well placed to make further strategic M&A investments funded by cash, even beyond the 140 million pounds remaining of the equity raise from last year.”
Jefferies argued that Boohoo “bought a lot of asset for 55 million pounds.”
“Given Debenhams’ challenges, it is perhaps easy to forget the scale and broad appeal of the brand. As recently as 2018, the business recorded 2.3 billion in U.K. GMV [gross merchandise value]; had 180 stores, and operated more than 10 million square feet of U.K. trading space.”
Jefferies also pointed out that Debenhams has six million beauty shoppers, and “meaningful brand relationships, particularly in premium beauty.” It said Debenhams’ peak 2020 pre-Christmas search index was seven times higher than that of Boohoo itself, according to GoogleTrends.
There is no stemming the ambition of these online titans, and the potential they have for reinventing retail.