Does Asos’ Shopping Haul Mark the End for the UK High Street?

Asos started February by purchasing Philip Green’s Arcadia empire in a deal worth over 300 million GBP. The deal included the brands Topshop, Topman, Miss Selfridge and HIIT which were bought for 265 million GBP, whilst a further 65 million GBP was included in the transaction to cover existing inventory and forward purchase orders. The takeover will rescue 300 jobs from Arcadia but is set to put approximately 13,000 employees’ future at risk. The deal leaves the future of the UK high street uncertain, as the deal does not include the brands’ 70 stores, including its Oxford Street Topshop flagship.

 

The most immediate and tangible concern will be for the thousands of jobs lost in the process of the transferral of the brands from the high street to the e-commerce world, with Asos’ chief executive, Nick Beighton, making it clear that “it’s not our model to operate stores”. Over 200,000 British jobs have been lost or put at risk over the course of the COVID-19 crisis, and the wave of retail redundancies is only set to rise as the pandemic accelerates the transition from high street to online shopping. Another result of Arcadia’s insolvency is the risk to its workers’ pensions, with the group’s staff pension pot suffering from an estimated deficit of 350 million GBP. If the deficit is not cleared, 10,000 Arcadia workers could fall into the Pension Protection Fund, a statutory fund in the United Kingdom, intended to protect members if their defined benefits pension fund becomes insolvent. These workers could also lose up to 20% of their retirement funds. This proliferation of redundancies looks to be a turning point, marking the end of traditional high street employment opportunities.

 

Furthermore, the deal has the potential to reshape the future of the physical high street store. After 50 shop closures last year, the collapse of Sir Philip Green‘s Arcadia into administration in November 2020 has led to confirmation that an additional 31 stores will close. However, many more are likely to shut, with little interest in buying the brands’ physical locations under the current lockdown conditions, and the trend of shifting to online retail. This trend is exemplified by the rise in Asos share prices, up 16.5% since August 2020. This would suggest that traditional high street companies will struggle to compete at previous levels in the fashion industry, as although Topshop’s online revenue grew over the past year, it was still insufficient to offset sales lost through to shutting of shops during lockdown. In contrast, the sales of Asos have been growing faster than from Arcadia’s own e-commerce sites, bringing into question whether there is still value to be found in the physical high street for the fashion industry.

 

Following Asos’ recent surge in share price value with its acquisition of a large portion of the Arcadia empire, it is worth considering whether Asos’ growth will be sustainable. The 265 million GBP price is one of the steepest there has been for brand/online transactions, nearly five times the 55 million GBP that Boohoo paid for Debenhams last week. Arguably the price is justified by the value of the Topshop, Topman, Miss Selfridge and HIIT brands, as they have seen a 40% growth in sales on Asos’ platforms in the past year. The fact that the two brands are complimentary, both possessing a core audience, aged 16-24, should also help the transition. In fact, Asos is already a leading sales channel for Arcadia brands, with half a million pairs of Topshop jeans being sold in the past financial year. Asos is also actively looking to work with partners such as Nordstrom in the US, who Topshop has a concession agreement with, to accelerate international expansion. Although finance director Mat Dunn predicts that there will be roughly 20 million GBP of start-up costs this year, the brands should generate a “double-digit” return on capital in the following year as sales recover, suggesting that the online fashion retailer has a long-term plan which could see it increase its market share in the industry in both the future.

 

While not the sole cause of the end of the UK high street, the Asos takeover of Sir Philip Green’s Arcadia empire does seem to mark the end of the traditional physicality of the fashion industry, as evident from the mass closure of high street stores, and thousands of job losses. Although this seems like bad news, there is hope that the employees’ pensions will be saved, with the Topshop Oxford Street building being pledged as security, and Lady Tina Green bringing forward an agreed 50 million GBP to fund the scheme. On top of this, with Asos experiencing such high growth, traditional high street jobs may be lost, but at the same time many will appear online and, as brands explore ways to enhance digital experiences.

 

By Sam Hughes-Penney

Sector Head: Gregor MacDonald

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