Authentic Brands 'eyes Arcadia, Debenhams', but can Ashley get in first?
Frasers Group chief Mike Ashley was reportedly racing to try to do a deal on Debenhams at the weekend with reports that he's focused on the firm’s online beauty business and would run very few of its stores. However, no news had come through as we went to press, and it seems that he may not have the field to himself.
US company Authentic Brands Group (ABG) is believed to be talking to Debenhams’ administrators too and in an intriguing twist, is said to be looking at Arcadia as well. Mike Ashley is also believed to be interested in some of Arcadia’s brands, as are a variety of UK-based firms, including Boohoo Group.
The entry of Authentic Brands into the fray could change everything. The company, which owns or has big stakes in Barneys, Brooks Brothers, Forever 21, Lucky Brand and many more, has very deep pockets and a determination to acquire some of the world’s best known labels.
The company hasn’t commented on either Debenhams or Arcadia, both of which are closely interlinked due to the latter being the biggest concession operator inside the former’s stores. Those concessions accounted for turnover of £117 million last year.
ABG's interest in the two failed businesses was reported by The Telegraph, which said that under chairman Jamie Salter and its backers, the company has been “the leading pandemic dealmaker in American retail” due to a reserve of over $1 billion (£756 million) , which could even put the resources available to acquisition-hungry Frasers Group and Boohoo in the shade.
Interestingly, ABG’s backers include Leonard Green & Partners, a California-based fund that earlier saw its £350 million Topshop/Topman stake wiped out after the chain’s International expansion turned sour.
Salter is a big believer in physical retail, but also appreciates the importance of e-commerce, and while his main focus has been the US, his company is reportedly set to open a London office soon.
Of course, there’s no guarantee ABG would submit a bid and if it did, it’s seen as likely that some Arcadia brands might not be of interest. The newspaper said that despite the Arcadia auction being run with iron-clad non-disclosure agreements, it has learned that Arcadia’s sales decline was already accelerating before the pandemic started and that the Evans, Miss Selfridge and Outfit brands are firmly loss-making, even before fixed costs such as rent are taken into account.
Arcadia has struggled as online has become more important with the company said to be making only 19% of its sales online (and that figure including webstore sales via Debenhams), although its online margins are over four times higher than its physical store margins.
DEBENHAMS' BEAUTY BUSINESS
So where does this all leave Mike Ashley and Frasers Group? Well, it's unclear exactly where he stands on Arcadia, but his Debenhams interest is clear. Despite ABG’s possible entry into the race, The Mail on Sunday reported that Ashley is racing to buy Debenhams and could clinch a deal imminently. It said he’d be buying a “vastly slimmed-down” Debenhams stores business and that his main interest is in the £500million web operation “to help him crack the high-end cosmetics market”.
Ashley reportedly told analysts at a low-key meeting that he wants to emulate The Hut Group with its giant online beauty operation, and Debenhams’ 1 million+ Beauty Club loyalty members would certainly help him do that.
And the slimmed-down store estate? When Debenhams was first put up for sale, its management had produced a plan for any buyer to operate around 60 of its 124 stores as a viable chain. But there are hints that Debenhams’ store numbers could end up being much smaller than that. And if beauty really is Ashley's focus, the issue of Arcadia's Debenhams concessions would become much less important.
The Mail said that last week Ashley flew by helicopter to look the Debenhams Peterborough warehouse and that “other potential bidders have been locked out of talks [with] hopes that a deal can be struck as soon as tomorrow”.
While any buyouts of Debenhams and Arcadia (or its individual brands) are likely to lead to some job losses, the alternative of no deals being struck would be even worse for the 25,0000 people directly employed by both businesses.
But it’s not only employees who are likely to suffer as suppliers are under heavy pressure too. Already on Friday it was learned that Arcadia supplier Lloyd Shoe Co is to file for administration. And at the weekend, The Telegraph reported that Arcadia administrator Deloitte has demanded 80% discounts for stock on its way to stores.
It quoted a letter from Deloitte that said: “The companies in administration hold the legal title to all stock which has been released from your factory and therefore are not legally obliged to pay for any stock in this category.”
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