Shares in ASOS (ASC:AIM) strutted 3.3% higher to £46.20 on Monday after the online fashion retailer acquired the Topshop, Topman, Miss Selfridge and HIIT brands from the administrators of Arcadia for £265 million in cash.
Expected to complete this Thursday, the deal provides ASOS with a ‘significant opportunity’ to drive the global growth of these brands, which are expected to deliver a ‘double-digit return on capital’ in ASOS’ first full year of ownership.
EXCITING MOMENT
ASOS’ chief executive Nick Beighton said his charge is ‘extremely proud’ to be the new owners of the Topshop, Topman, Miss Selfridge and HIIT athleisure brands.
‘The acquisition of these iconic British brands is a hugely exciting moment for ASOS and our customers and will help accelerate our multi-brand platform strategy’, explained Beighton.
The online retailer for fashion-loving 20-somethings sees the acquisition as ‘a compelling strategic opportunity’, pointing out that pre-Covid, this quartet of brands generated total sales of around £1 billion across all channels.
And they continue to resonate with the core ASOS customer base, having grown by 41% on the ASOS platform in the first quarter of the 2021 financial year.
Boasting an established presence in the UK, US and Germany, the brands are complementary to the existing brand portfolio offered by ASOS, as Shares outlined here.
While ASOS is acquiring the brands outright for its online platform, it will select the best retail partners to accelerate the brands’ global opportunities.
In today’s statement, ASOS highlights the potential to accelerate their US growth through its partnership with Nordstrom, the department with Topshop concessions in its brick and mortar stores.
Together, online pure plays ASOS and Boohoo (BOO:AIM) are bagging up prized brand assets from the once-mighty Arcadia. Boohoo is in talks to acquire the failed retail conglomerate’s Dorothy Perkins, Wallis and Burton brands, having already snapped up the online business and brand assets of Debenhams for just £55 million.
A SENSIBLE ACQUISITION
Shore Capital regards this as ‘a sensible acquisition’ from ASOS, one that ‘harnesses its already existing Topshop relationship and cements the brands for its core customer.
‘Under the ASOS umbrella there is a global opportunity to grow these four brands with a higher gross margin opportunity, than a wholesale one previously.
‘Whilst not without execution risk we believe that the former jewel in the crown of the Arcadia stable can throve and prosper as ASOS looks to leverage the Topshop brand globally.’
AJ Bell investment director Russ Mould stressed that ‘this is not a transformational acquisition, and that’s a good thing. ASOS isn’t buying another retail business where culture clash, integration problems and skeletons in the closet are generally the key risks to overcome. Instead, it is slotting established brands into its existing infrastructure and proven way of doing business, albeit with guidance to make some very attractive returns on investment.
‘The downside of ASOS’ actions is the large number of people working for Arcadia who will now become unemployed as stores are shut. It is only keeping approximately 300 staff, which is only a fraction of the number who worked for the brands being acquired.
‘It means the high street is left with even more vacant stores, and names strong enough to keep standing, such as Zara and H&M, are left in an even stronger position as competition is further reduced for those people who still prefer to go into a store to buy, or at least browse, clothes.’
