Asos and Boohoo: barbarians at the gate

In the spring of 2002, Philip Green threw a party befitting the last days of Rome: toga-clad models, popstars and other celebrities were flown to Cyprus for a three-day bacchanal in honour of his 50th birthday. Dressed as Nero, the retail tycoon who made his fortune buying up the UK high street received a solid-gold Monopoly set from his wife to mark the occasion.

But on the other side of Europe, the barbarians were quietly laying the groundwork for their march on Rome’s gate. A small London-listed firm, AsSeenOnScreen, would that same year persuade investors to sign off a proposal for its new name: Asos (ASC). For a website that started out selling imitations of movie costumes, it was the next step on its path to becoming the UK’s leading online fashion retailer.

Less than two decades later and the coup d’état is almost complete. Mr Green’s loss-making Arcadia empire collapsed last November under its overwhelming pension deficit, after failing to adapt quickly enough to the rise of online shopping. Now Asos, the go-to destination for fashion-hungry millennials, is in prime position to pick off its most desirable brands: Topshop and Topman.

The retailer confirmed it was in “exclusive” talks with Arcadia’s administrators on the same morning that its e-commerce rival, Boohoo (BOO), said it had bought the intellectual property rights to Debenhams. The department store, founded in 1778, collapsed almost immediately after Arcadia, one of its main fashion suppliers, filed for bankruptcy.

With these two announcements in quick succession, the rebalancing of power in the UK retail sector seems to have reached a dramatic denouement. After losing market share to e-commerce for years, Arcadia and Debenhams were dealt a fatal blow as coronavirus lockdowns shuttered high streets across the country. Boohoo and Asos, which Mr Green reportedly once predicted wouldn’t last as a business, saw sales surge during the crisis, boosting cash coffers they had already been building for acquisitions.

Neither of the online-only retailers are looking to acquire their targets’ bricks-and-mortar stores. Thousands of high street staff at Arcadia and Debenhams will have been rooting for different suitors, but these were less forthcoming. Recently, both companies were mooted as prime targets for Frasers (FRAS), the high street empire owned by Mr Green’s longtime foe, Mike Ashley. But Mr Ashley’s plans only fuelled those who have long sneered at his dogged pursuit of cash-burning high street properties.

Time will tell if taking the Debenhams and Topshop brands and absorbing them into purely online businesses is a more sensible rescue plan. Asos has spent £295m on Arcadia’s Topshop, Topman, Miss Selfridge and HIIT brands. To acquire Debenhams’ intellectual property and customer data, but none of its tangible assets, Boohoo will pay £55m: more than four times the department store’s reported earnings in the year to August. Some may wonder if the cash-rich online retailers are falling victim to the same profligacy that marked the downfall of industry leaders before them.

The absorption of hallmark millennial brands Topshop and Topman makes sense for Asos, which already sells their clothes through its online stores. But Boohoo’s acquisition will take it in a markedly different direction. While it will acquire Debenhams’ fashion brands, Boohoo’s first stated aim is to “rebuild and relaunch” the department store as a separate standalone online marketplace, as it looks to secure an older demographic of the market than it reaches through its own website. For £55m, it is essentially buying the right to give Debenhams a makeover for the 21st century.

The fact that Debenhams is such a recognisable brand is not a guarantee it will succeed. Buyers have previously tried to turn Woolworths and BHS, Mr Green’s failed department store, into successful online operations – but to no avail. 

Meanwhile, Boohoo’s share price – and reputation – has still not fully recovered following allegations in July of abuse in its supply chain, although its stock is still higher than it was this time last year. Online retailers are also counting the new costs of shipping packages across borders post-Brexit: Asos is anticipating additional tariffs of £15m for the full year.

But John Stevenson, retail analyst at Peel Hunt, said both acquisitions should be worth their price tag. The great divide in retail is not between online and the high street, he suggested, but between those businesses that can and cannot give consumers what they want. The digital and logistical infrastructure developed by Asos and Boohoo can provide the choice and convenience Topshop and Debenhams customers will demand from online shopping.

Long before the invasion of the barbarians, the Roman Empire was crumbling under the excesses and financial mismanagement of its elites. Similarly, the collapse of Debenhams and Arcadia cannot be blamed solely on the pandemic and the rise of e-commerce alone: plenty of fingers have been pointed at the mishandling of Arcadia in particular. Investors will hope these companies’ new owners can do a better job.