Shed a tear for physical retail as Boohoo swoops to take Debenhams online-only for a bargain price of £55 million

Profile picture for user slauchlan By Stuart Lauchlan January 25, 2021 Audio version
Summary:
Ignore the ludicrous 'taking on Amazon' claims of some commentators and Boohoo's online takeover of Debenhams is a bold throw of the dice.

Debenhams
(Debenhams)

A retail institution that can date its origins back 243 years is snapped up by a 15 year old fashion e-tailer. That’s the underlying reality of the move by online retail firm Boohoo’s £55 million takeover of the UK high street fixture Debenhams and it’s a reality that says a lot about the balance of power in retail in 2021.

Once the UK’s largest department store group, Debenhams has been on a slippery slope for many years, finally falling into administration last year. Today a deal was announced with online fashion retailer Boohoo to pick up the brand name and the website, but to ditch every one of the its remaining 118 physical stores.

Boohoo intends to re-launch debenhams.com as an online marketplace, selling both Debenhams own product lines as well as those from third parties, a move which the mainstream media has inevitably and credulously reported as an attempt to ‘take on Amazon’. Boohoo just reported turnover of £1.477 billion for the ten months to 31 December 2020, so even with a predicted growth rate of between 36% and 38% by year end 28 February 2021, there is, shall we charitably say, a lot of catch-up to do between it and Amazon before Jeff Bezos is having any sleepless nights. (Debenhams online revenues for the year ended 31 August were £400 million.)

For his part, Boohoo Group CEO John Lyttle wisely doesn’t even mention the A-word when explaining the rationale behind the acquisition, but can barely conceal his glee at what is clearly seen as a major bargain:

For £55 million pounds, we have acquired a Top 10 UK retail website, which has around 300 million visitors each year and significant brand awareness of 90%. While our initial focus is on a UK customer base, across the Group just under half of our revenue is generated internationally, so there is opportunity to launch the marketplace in our focused international markets over time. We have unlocked new routes to market for our existing brands and have extended our existing brand portfolio by adding depth and labels into our portfolio.

He adds:

What we're seeing alongside the shift to online is a shift in customer expectations and preferences. Convenience, speed and choice are top of customers priorities. Instead of visiting department stores, they're looking to access brands, beauty and homeware in a convenient online location, which we're now able to offer to them through debenhams.com. Debenhams is a well-known online destination for these shoppers, far surpassing traffic from major department stores and competing, but established, platforms.

Boohoo will be looking to take Debenham’s existing concessions and brand partnerships with it to the new online-only model, explains Lyttle:

We'll be running a marketplace for third party brands and everything from Debenhams extensive list of existing brand relationships. This means that debenhams.com acts as a shop window for brands to sell their products and tap into its large customer base. Brands will benefit from being able to leverage brand awareness and traffic to the Debenhams marketplace. The Group will take a commission share from the brands who list their products on the site., but not be responsible for the fulfillment of the order, customer services or subsequent returns. As such, this is a low risk way for the Group to extend its brands and connect with customers with minimal capital investments.

Beautiful plans

The firm also intends to use its new asset as a way to push at scale into the increasingly lucrative online beauty business. Debenhams has 6 million beauty customers per annum and 1.4 million subscribers to its Beauty Club loyalty scheme. This a market in which Boohoo has only dipped its corporate toes to date, says Lyttle:

We plan to continue the current wholesale business, meaning we have access to the 6 million shoppers who have shopped with Debenhams previously. Members of the current beauty team will be coming across to join the Group to support our growth and brand relationships in this area. We will also be looking to relaunch the Beauty Club...These shoppers shop with a great frequency and have substantially higher average order value.

Buying up troubled high street retail brands out of administration and converting them into pureplay online operations has become a Boohoo standard. It’s pulled off the same trick with the likes of Oasis, Coast and Karen Mllen, which leaves Lyttle confident that the group has an established and workable playbook here:

We now have extensive experience of acquiring and integrating established brand names onto our platform, as we've done with previous acquisitions. We are just acquiring the brand name and associated IP of the Debenhams online business, which includes an extensive customer list. We have an excellent track record of integrating new brands quickly.

In practical terms, the Debenhams administrator will continue to operate the Debenhams website for the next couple of months until all the current inventory clears. After that, debenhams.com will move across onto the Boohoo platform to go live shortly after. Boohoo uses Salesforce's Commerce Cloud. This will represent a shift in Boohoo’s own strategy, says Lyttle:

Today the group operates nine pure-play websites, which means each brand operates its separate website. They are high fashion brands, with a highly-engaged audience, particularly on mobile and social media. We ship to almost every country in the world from two fulfilment centers currently, with our third going live in the next couple of months. And we relaunch debenhams.com, the websites will move across to our platform. For the first time in our history, we'll be selling all our brands from a single site. Debenhams customers will be introduced to our brands, which will support further market share gains and greater brand awareness.

My take

The end of an era in UK retail - albeit one that’s been digitally ‘dad-dancing’ towards the exit for some considerable time. Boohoo’s total indifference to the physical store estate that was once Debenhams proudest asset tells its own story and while the ‘taking on Amazon’ populist meme is tedious in the extreme, the deal looks like an absolute steal for the online pretender.

That said, there are caveats. It’s assumed that the existing Debenhams third party brands will follow Boohoo into the new arrangement. In fact, as Lyttle confirms, these are conversations that are yet to be had. And when they are had, there may one or two difficult questions to answer about allegations in the media last year around working conditions at Boohoo, including claims that workers in a Leicester factory were paid just £3.50 per hour while offered no COVID-19 protection. Boohoo has said it is acting to put in place recommendations for improvements stemming from its own inquiry into the situation. Will there be enough progress on show to make Boohoo - and by extension Debenhams - an appealing brand for third parties to associate with? Perhaps Boohoo will earn reflected merit from Debenhams? Only time will tell.

The online beauty market aspirations are an intriguing ambition. There’s clearly a lot of room for growth here - check out a couple of use cases coming up on diginomica over the coming days for evidence of that. That said, it’s already a very competitive space. Again, Boohoo will be looking to bring big names along with it, but as we’ve reported many times, the highest profile firms here already have their own plans in many cases.

A further question obviously will revolve around resources and priorities. The £55 million price tag may be a win for Boohoo, but growing out its marketplace ambitions will take investment, as will its beauty goals. If all’s well, both can progress at their own pace; if times get rougher, which one will be the main concern for Boohoo?

Still, it’s all to play for. At a time when fellow digital fashion retailer ASOS is in hot pursuit of the assets of Arcadia’s TopShop and TopMan, the shift to online is ramping up - and leaving even more empty buildings on the high street and in shopping centers in the process. The Debenhams gambit by Boohoo is possibly the most significant move to date, but it certainly won’t be the last.