More stores leave the high street - how can retailers survive the pandemic?

What appears to possibly be an initial good news headline of the Debenhams brand being saved by Boohoo, is far from it when you take in what is actually happening. Within days of this news, Asos has followed suit in its acquisition of Topshop, Topman, Miss Selfridge and leisurewear brand HIIT.

Following a long list of companies such as Bonmarche, Peacocks and Jaeger, DW Sports, Lee Longlands, Quiz, Go Outdoors, Oasis and Warehouse group, and many more, the demise of Debenhams is another significant 'nail in the coffin' for the high street. The real tragedy is that thousands of people have had the last hope of any form of salvation ripped from them. In terms of Debenhams, some 12,000 jobs are to disappear and the Debenhams name will no longer have a physical presence in town centres. Asos has agreed not to take on any of the brands' stores, adding to the crippling of the high street and the risk of even more job losses.

Takeovers, mergers and acquisitions are a part of corporate life. Change, in whatever form, is the constant, but here we see something at the extreme end of this spectrum of activity, where we are witnessing the collapse of well-established brands that anchor, what was once, the bustle of the high street. For example, the Debenhams brand may live on and Boohoo certainly value what that brings to it, after all, there is worth in nearly 250 years of trading. Nevertheless, it is cold comfort to those individuals who are losing their livelihoods.

Why did these businesses go under?

Like many organisations straddling the physical and online presence, Debenhams has been battling with risk of political uncertainty over Brexit, delaying investment and potential growth. The end of year accounts over the last three years have shown a downward trend in earnings per share (EPS), Return on capital employed (ROCE), share price and an upward trend in borrowing.

Nonetheless, the company felt it could continue as a going concern and make it to the other side of a Brexit deal. Both consumer confidence and the exchange rate have suffered in this period of uncertainty. It appears the company has been unable to ride the storm and notice any investments post the Brexit deal. Even if it had started to make a comeback, the pandemic, coupled with the mindset that comes with a private equity acquisition, has made survival impossible.

Similarly, Arcadia, even before the pandemic, was losing touch with its audience. Competition from low-cost fashion providers on the high street resulted in declining sales for Arcadia. Like Debenhams, the group has been slow to invest in the digital platform and, as a result, its brand presence sits mainly on the high street, meanwhile online retail is growing.

What is the value to online retailers?

So, what are the potential benefits to Boohoo? In short, it is the brand name they have acquired, along with a stream of Debenhams' online customers; 300m visits to its website and £400m of sales in the year to August 2020. No doubt, this will add to Boohoo's online revenue, without the burden of lease payments and or huge debt; this will grow their income and operating profit margin. Boohoo has managed the acquisition with their cash reserves, something Debenhams has been short of since it was burdened with debt during its time under the private equity consortium that acquired it in 2003.

Boohoo, on the other hand, has gone for the inorganic growth strategy, supported by an economic climate that has enabled it to increase its market share owing to the closure of high street retail stores. That, coupled with its agility and good supplier relationships, has meant that Boohoo, not only has the cash to acquire (Guardian, 2021) and invest but appears to have the supply chain in place to deliver to an even bigger 'lockdown' audience. Just days after, Asos announced its acquisition of key high street brands, like Boohoo, having the cash to do so and the digital infrastructure in place.

That said, only time will tell if Boohoo can retain the benefit of the brand, match the expertise and knowledge to deliver the home and beauty products (a new area for Boohoo), overcome the criticism of poor ethics and, ultimately, enjoy the synergies of an acquisition. Our shopping habits have been changing for some time. Covid-19 has exacerbated this with a more forced shift to online retail. The future is going to be tough in this market space.

Advice

The current Covid environment is really making organisations think and re-evaluate their strategies to not only survive this period but to make sure that post-pandemic they still have a business to run. The recent failures on the high street may have provided a bit of breathing space for those that remain and by not ruling out the retention of some physical presence, Asos may have presented a glimmer of hope for the high street.

However, it is also a warning to companies to make sure they are in a strong financial position, gearing levels are managed, a balance between investment and reserves is struck, relevant skills sets are retained and innovation and technology is embraced.

A fresh look at how this changing 'shopping experience' is to be managed will be at the top of the agenda item for the high street leaders. Companies need to have the ability to invest with minimal overheads, to be able to access cash and be agile and responsive to what will, no doubt, be a customer base with very different shopping habits.

There are question marks over what use the empty stores will have. Will the business of leasing begin to crumble as more and more stores are emptied? The financial management and structure alongside the marketing intelligence, to support a fresh, more diversified offer, is key to the survival of the high street.