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The online retailer Boohoo has made an offer to buy the digital businesses and brands of Karen Millen and Coast, in a move that will raise fears for the jobs of hundreds of workers in the brands’ high street stores.
In a statement to the stock market published on Tuesday, Boohoo said it had offered to buy the brands, but made no mention of the struggling Karen Millen’s extensive high street network.
Karen Millen and Coast together employ about 1,100 people with 32 stores and 177 concessions across the UK. Coast also has a significant overseas presence, with concessions in the Middle East and outposts as far-flung as Singapore and Malaysia.
What’s the problem?
Physical retailers have been hit by a combination of changing habits, unseasonably warm weather, rising costs and broader economic problems. 2018 saw the disappearance of Toys R Us, Maplin and Poundworld as a result.
In terms of habits, shoppers are switching to buying online. The likes of Amazon have an unfair advantage because they have a lower business rate bill, which holds down costs and enables online retailers to woo shoppers with low prices. Business rates are taxes, based on the value of commercial property, that are imposed on traditional retailers with physical stores.
At the same time, there is a move away from buying ‘stuff’ as more people live in smaller homes and rent rather than buy. Those pressures have come just as rising labour and product costs, partly fuelled by Brexit, have coincided with economic and political uncertainty that has dampened consumer confidence.
What help do retailers need?
Retailers with a high street presence want the government to change business rates. They also want more political certainty as the potential for a no deal Brexit means some are not only incurring additional costs for stockpiling goods but are unsure about the impact of tariffs after October 2019. Retailers also want more investment in town centres to help them adapt to changing trends, as well as a cut to high parking charges which they say put off shoppers.
What is the government doing?
In the October 2018 budget the government announced some relief on business rates for independent shopkeepers. It has also set up a £675m ‘future high streets’ fund under which local councils can bid for up to £25m towards regeneration projects such as refurbishing local historic buildings and improving transport links. The fund will also pay for the creation of a high street taskforce to provide expertise and hands-on support to local areas.
What is the outlook in 2019?
Some retailers could go under. Weakened by a difficult Christmas – which accounts for the entire annual profits of many retailers, and with further Brexit wobbles to come – retailers are facing a tough 2019. Another rise in the national minimum wage in April and the falling value of the pound against the dollar, which is used to buy goods in the Far East, have also added to costs and hit profits.
The Karen Millen holding company lost £5.7m in the year ending February 2018, after losing £11.9m in the previous financial year. Deloitte was hired as advisers about six weeks ago to assess options, and quickly decided a sale was the best option.
It is understood that Karen Millen has received multiple bids, but Boohoo’s offer is preferred at this point. Administrators could be called in as soon as Tuesday to run the sale.
In its statement, Boohoo said it had “made an offer to acquire the online business of renowned British brands Karen Millen and Coast, together with all associated intellectual property rights”.
A large proportion of Coast’s concessions are located in Debenhams and House of Fraser department stores, which have been forced to close branches to weather the high street trading crisis.
Boohoo, the fast-growing online empire whose brands include PrettyLittleThing, Nasty Gal and MissPap, has been one of the few retailers to buck the trend of painful decline in the sector. In June, the company reported a 39% sales rise in the three months to 31 May.
Boohoo was founded by the fashion entrepreneur Mahmud Kamani and Carol Kane in Manchester in 2006. It has expanded quickly, floating on the stock market in 2014. Its market value was £2.7bn on Monday, and shares rose by 1.2% in early trading on Tuesday.
The retail analyst Nick Bubb applauded the company’s move to diversify its business towards the older shoppers who frequent Karen Millen and Coast.
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