There has been an odd increase of acquisitions in the retail industry recently, considering the range of retailers that have entered into administration such as Aldo and Benson Beds. Boohoo, a large online retailer, has recently entered into a deal to buy Debenhams for £55m after having bought other online businesses such as Oasis and Warehouse for £5.25m. Boohoo’s shopping spree also involved purchasing Perkins, Wallis and Burton for £25m Similarly, ASOS has acquired Topshop, Topman and Miss Selfridge. However, a key element of ASOS and Boohoo’s deals is that the takeover includes the brands and websites but not the physical stores.
Buying the Brand not the store
The technique of breaking the business apart is so that ASOS and Boohoo can retain only the profitable bits of the deal. The online retailers have decided to ‘buy the brand’ so that they do not have to take on the employees and the physical stores. This is because buying the entirety of each of the brands – inclusive of the stores – would be too burdensome as it would increase the purchase price of the deals. The result is a better bargain for ASOS and Boohoo but jeopardizing the jobs of retail staff. For example, job losses at Debenhams alone could amount to 12,000.
Okay, so what?
In addition to contributing to high unemployment rates, the shopping spree ASOS and Boohoo have just engaged in is disastrous for the retail industry. The brands engulfed by the online retailers are worth 3 centuries of British heritage. ASOS and Boohoo now have valuation of £5bn which make them twice the size of more fragile businesses such as Marks and Spencer. Both businesses plan to continue to increase the portfolio of retailers under their belt and continue dominating the retail industry.
Having the majority of the high street under the control of two retailers is not only problematic for oligopoly reasons, but also because this means in the future this means you would only be able to get clothes online as many more stores are expected to close. Replacing empty stores with leisure, residential and office spaces may be a viable option but is time consuming and will only materialise in the long-term. This is also problematic for local councils who rely on retailers to pay hefty business rates to them. For example, Debenhams alone used to pay £50 million a year solely in business rates.
Further, in the event empty stores are replaced, this will still cause issues for landlords who have to deal with empty properties. They would fear the prospects of lower rent from non-retail tenants and have to consider either selling their properties or bringing in more charity shops.
Thus, the purchase of a portfolio of retail brands by Boohoo and ASOS could have overreaching effects on the economy as a whole. The impact would naturally be felt by the commercial property market first and this would then trickle down to consumers and residents. The dramatic transformation of city centers and the retail industry should not be taken lightly as this is more than your everyday acquisition. This is quite literally the death of the highstreet and the implications are yet to come.