Comment: Boohoo losing its youth
You cannot read everything from a share price of course but it is among the solid indicators of a company’s health and future prospects. Boohoo has fallen from a peak of over 400p in June 2020 to 26p today and its contemporary ASOS has collapsed from £75 in early 2018 to 230p today.
There is no disputing the fact that both these retailers forged a pioneering path in fast fashion for young consumers in the early days of the online channel. They had a good run at it for a few years and their managements and shareholders were very well rewarded. But that fruitful run has well and truly come to an end. Harsh competition from the likes of Shein, a backlash against unsustainable practices, and poor management decisions are among the factors contributing to them falling on hard times.
Indicative of how difficult things have got is the move by Boohoo Group to become a marketplace and rename itself as Debenhams. Under Dan Finley, recently appointed CEO at Boohoo Group, the old department store business was brought back from the dead as an online-only marketplace. He did a great job and now as boss of the overall group he is looking to use this playbook across the entire business encompassing its various brands.
This involves adopting a stock-lite and capital-lite approach that has proved very profitable and highly cash generative with Debenhams. Who doesn’t like a business that can make a healthy turn from not having to hold any physical stock? But the Debenhams business was simply about trading other people’s brands whereas Boohoo Group is predominantly a business with its own (mainly youth) brands including – Boohoo, PrettyLittleThing, boohooMAN, and Nasty Gal.
Never Miss a Retail Update!I’m not sure how the Boohoo Group brands can become stock-lite marketplaces. I can certainly see the appeal of the move as the group has for many years struggled with its stock management – it recently took a £40 million write-down on surplus inventory. The group has stated that it “believes there is future potential in these brands by pivoting them to the fashion-led marketplaces” but it is hard to see how this would be possible without jettisoning the youth brands or seriously reducing their presence on each of the marketplaces. Otherwise the issue of dealing with actual inventory persists.
It will be interesting to see how much revenues are generated by each of the youth brands on their respective marketplaces versus the third-party brands because for this whole stock-lite exercise to work they must ultimately represent a dwindling percentage.
The group is also hoping to deliver an improved performance on sustainability and says a new ESG strategy will underpin its new strategic initiatives. Whether the boat has already sailed on that one for Boohoo Group remains to be seen. It will have to do a lot more than change its name to Debenhams before it ever gets recognised as an exemplar of sustainable practices.
There is no doubt Boohoo, sorry Debenhams, which like Asos and other fast fashion-type brands carry a very heavy legacy from their earlier days. This increasingly turns off great swathes of youngsters who back in these company’s heydays, when share prices were peaking, were their high-spending champions.
