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Who doesn’t remember a trip to Oxford Street to check on the competition or just feel the consumption frenzy? Well, the Oxford Street and the high street we used to know will not be the same anymore. Debenhams and Topshop collapses are a brutal reminder of department stores and clothing chains struggle, private equity mismanagement, lack of strategy and then Covid-19 dramatically speeding up the process. Even though the brick-and-mortar shutdowns trend is global and rampant, we might find ourselves at a turning point, especially in the United Kingdom, with Boohoo and Asos buying bits of Debenhams and Topshop.

What has happened to the famous British retailers? What are Boohoo and Asos’s buying strategies aiming at? Are Debenhams and Topshop buyouts specific business cases? Is there a new pattern to be observed?

The high street fiasco

Debenhams and Topshop have been sharing history for a long time. They were both part of the Burton Group in the 1980s and 1990s. Their economic issues go back to before Covid-19 hit the world and the UK last year and they are collapsing at the exact same time.

Founded in 1778, Debenhams was once one of the largest retailers in the UK.

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when a private equity consortium (CVC, Texas Pacific and Merrill Lynch) acquired the department store for GBP 600 million. Three years later, the company returned to the stock market for GBP 1,2 billion. The consortium also took out more than GBP 1 billion from selling the company’s real estate and leasing it back. At that point, Debenhams was loaded with heavy debt and tied to very expensive leases. It was too late to remodel the strategy and there was not enough money left for investments such as the much-needed digital ones. Even recruiting Sergio Bucher coming from Amazon was no help. Reducing the store portfolio could also have been a smart, if not a lifesaving move: but while online shopping was expanding, Debenhams was still opening stores in 2017. Moving forward, it went from bad to worse until 1 December 2020, when Debenhams went into administration.

What about Topshop? When Debenhams exited the Burton Group, the remaining part of it became Arcadia Group and was acquired by Sir Philip Green’s family. Arcadia Group’s brand portfolio (Topshop, Topman, Miss Selfridge, HIIT, Dorothy Perkins, Evans and Burton) used to be led by Topshop for more than a decade, with years of thriving business, top models and billion dividends. At that time, there were still plenty of seats left at the digital table, but

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to force Topshop into the online-shopping era and failed to position the brand as one of its leaders. The Nordstrom deal was also probably too little to allow Topshop to really break into the US market. In the meantime, Topshop product offer diluted as competition became fierce, with both brick-and-mortar retailers and online players. In 2018, Sir Philip was also caught up in abusive sexual behaviour scandals, adding more mistrust towards him. Finally, on 30 November 2020, the group entered administration, just 24 hours before Debenhams did.

Get a move on

Going deeper into Boohoo and Asos’ moves, what do we know so far? They are both wunderkind British-born e-tailers chasing Millennials and Gen Z consumers for more than 15 years. Boohoo was first to acquire companies with Karen Millen and Coast in August 2019, then with Oasis and Warehouse in June 2020. In January 2021,

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for GBP 55 million (USD 75.4 million): website, private label brands and customer data. As of now, the website still attracts 300 million visitors a year. Boohoo also bought four fashion private labels that are appealing to the older generation (Maine, Mantaray, Principles and Faith). Thanks to Debenhams’ strong position on the cosmetics and perfume market, Boohoo is acquiring the 1.4 million Beauty Club members. The deal does not include the 130 brick-and-mortar stores and the 12 000 jobs involved. Premium locations such as Oxford Street, the ones that were fought for not that long ago, are not considered. A few days later, Boohoo acquired Burton, Dorothy Perkins and Wallis, all “mature brands” and the last remains of Arcadia Group. It’s a GBP 25.2 million (USD 34.7 million) deal and, once more, it does not include the 216 stores and the countless jobs involved. While only 10% of Debenhams’ customers are also buying from Boohoo, this demonstrates a strong will to grow outside of its existing 20-something business and to target new segments of the market such as cosmetics or older male and female clientele. The company said it’s a “significant opportunity to grow Boohoo's market share across a broader demographic”.

Asos, on a larger scale than Boohoo, aims to become the world’s number one destination for young fashion addicts thanks to its huge, varied and inclusive product offer. The company’s latest move will certainly serve that mission and will strengthen its strategy. As an existing wholesale partner to the brands,

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and sister brands Topman, Miss Selfridge and HIIT for GBP 295 million (USD 411 million). In 2020, Asos increased its sales by 19%, growing from GBP 2.7 billion to GBP 3.17 billion and could count on 22.2 million active customers. Asos said in a statement: “The Board believes this would represent a compelling opportunity to acquire strong brands that resonate well with its customer base.” An Exane BNP Paribas survey states that 40% of Topshop’s shoppers are also buying from Asos. Like Boohoo, Asos does not include Topshop’s 168 stores and 13 000 retail jobs in the deal.

While Boohoo is moving into markets outside of its current core business, Asos is strengthening its position in order to take the lead in its segment. While these are different strategies, both companies will grow their online footprint in the very near future.

Is it to say that Topshop or Debenhams stores will all permanently disappear? It remains to be seen, but one can guess that these digital brands in the making will find themselves in need of a physical approach to the business at some point (as other e-tailers have done). Whether it’s to have a brand billboard, a service touchpoint, a community hub or offer immersive entertainment to customers, stores should remain a key part of the business. Asos’ CEO Nick Beighton hasn’t ruled out the idea of taking over Topshop’s Oxford Street crown jewel “if it becomes financially attractive and we can find a partner to work with on that, never say never”.

Are we all British?

Unfortunately, Brexit will have a major impact on such decisions. What will be the point of running stores when visitors from abroad might not consider UK as a shopping destination any longer? In fact, there is no more tax refund for foreign tourists from 1 January 2021. In 2019, they spent GBP 3 billion on fashion and luxury goods in the UK. “We are now the only country in Europe offering no VAT rebate, so why would tourists not go to Paris instead?” says Paul Barnes, the CEO of Association of International Retail.

Going further, is there a specific British pattern to be observed? What makes Debenhams and Arcadia bankruptcies and acquisitions specific? While the European economy was declining, it was no secret there were too many department stores and clothing chain options on the British high street. Besides and more importantly, British online consumption was increasing rapidly, thanks to (among others) Asos and Boohoo. According to an Office for National Statistics study, British online monthly consumption went from GBP 854 million in January 2016 to GBP 1.386 billion in January 2020. For the month of November 2020, just when both Debenhams and Arcadia were going into administration, ecommerce hit a record GBP 3.250 billion turnover, accounting for 36% of British total retail sales for the month. In this turmoil, winners are the ecommerce moguls for sure, but what is unprecedented is to witness their breaking and entering the British department stores scene.

While British retail and department stores might suffer more than others in the near future, we assume that the ones that are (and will be) surviving through numerous crises, are the ones adjusting to online demand, streamlining their operations and adapting their store portfolio.

One of the many learnings in Debenhams and Topshop’s disasters is also about differentiation, hence branding. Both -as brands- were once magnets to customers. They were attracting them thanks to the values, difference, uniqueness or zeitgeist they were claiming to carry. Whatever you name it, it has been lost at some point of the journey.

The branding question is more than ever a critical question for department stores. It will infuse all of the challenges ahead whether it’s about enhancing and transforming customer experience, growing digital capabilities or providing products appealing to an ever-evolving shopper.

Credits: IADS (Christine Montard)