ASOS buys Arcadia brands, has ambitious global plans, stores not mentioned

By

Sandra Halliday

Published
Feb 1, 2021

ASOS confirmed what everybody already knew on Monday, saying that it has bought the Topshop and Topman brands, as well as Miss Selfridge and HIIT. But it shared more information, also saying that it has ambitious plans globally and that the brands saw faster-than-ever sales growth on the platform in the latest period.

But no mention was made of the stores and given that the company is only taking on around 300 of the four labels’ employees, it’s clear that the shops aren’t part of the deal. It didn't say whether it has any plans around the Topshop London flagship either.

The details we do know are that the company paid £265 million for the four brands, plus £30 million for the stock, and described it as a “strategically compelling opportunity to acquire strong, iconic fashion brands resonating with our core customer base”. 

That's clearly not an understatement given that they saw growth of 41% on ASOS in the first period of the 2021 fiscal year. Importantly too, the brands have an established presence in the UK, and in the core markets of the US and Germany, and complement the existing ASOS brand portfolio, “increasing customer choice”. 

Its not all perfect, of course, apart from the store closures now expected and big job losses, in the most recent 52 weeks (ended 29 August 2020) Topshop, Topman and Miss Selfridge made an unaudited EBITDA loss of £1.8 million across all channels. HIIT was a sub-brand of Burton (which ASOS isn’t buying) and profitability is less readily available, but it’s estimated that the brand generated a loss of around £0.4 million across all channels. But given that those losses include physical stores and are relatively small, its clear that under the new set-up they could return to profitability.
 
GLOBAL PLANS AND BRANDS

The company added that it has a clear plan to use its "market-leading capabilities to drive growth globally and accelerate its ASOS Brands strategy”. Crucially, the move is also expected to accelerate the firm’s US strategy, spearheaded by its Nordstrom partnership.

ASOS said the deal, which completes on Thursday, is a “financially attractive” transaction. In 2019, before impact of Covid, the brands delivered total revenues of around £1 billion across all channels. Despite business and supply challenges over the last year, they continued to grow through online and retail partnership channels, with total revenues in 2020 of around £265m as brand sales via retail partners grew 16% and online sales grew 5%. As already mentioned, their growth on ASOS itself was more than 40% in the latest period.

So what happens now? The company plans to “overlay” its own design, buying and marketing capabilities on them to strengthen the brands and “transform” their digital experience through full integration into the ASOS platform, all underpinned by its existing global warehouse and technology infrastructure. But it will transition only around “300 employees across design, buying and retail partnerships”.

CEO Nick Beighton said it’s a “hugely exciting moment” and that the acquired labels will join the firm’s Venture Brands portfolio, alongside others including Collusion, AsYou and Reclaimed Vintage. “We will retain their established brand and customer positioning, which is differentiated from our core ASOS Design and other ASOS Brands. This enhances our ability to increase choice for customers offering different customer styles, hero product and price points across our ASOS Brands,” he said.

The company will internationalise them much more too — something that had been tried via physical stores for Topshop under its previous ownership but that was marked by an eventual retreat from most international territories.

The ASOS international warehouse infrastructure and it said localised online experiences “will support continued growth through our own platform. In addition to this, there is significant scope for selective development of strategic retail partnerships. We see particular opportunity to increase the brands' reach and accelerate our US strategy via partnership with Nordstrom in this key market”.

The purchase has been fully funded from cash reserves but any additional profits the labels might bring will be offset by initial investment costs at the start.