By Geoffrey Smith
Investing.com -- Online retailer Boohoo.com (OTC:BHOOY) signaled it's moving beyond its historic roots in fast-fashion by buying up the brand rights to the collapsed high-street chain Debenhams.
The acquisition, for 55 million pounds ($75 million) greatly expands its footprint and propels it into segments that have thrived during the pandemic: sport and homeware. A bit of exercise gear and some new cushions are just the thing to banish the blues when lockdown leaves you all dressed up with nowhere to go, after all.
JD (NASDAQ:JD) Sports (LON:JD) and Dunelm (OTC:DNLMY), proxies for Boohoo's two new segments, may not have done quite as well over the last year as online fashion, but they have still held their value: JD stock is down only 2.7% from a year ago, while Dunelm (LON:DNLM) is up 1%, stoutly defending gains over 80% made over the previous two years. Both stocks edged lower on Monday, after a weekend that the U.K. spent talking about tightening its borders and fretting about its infection rate, even though new case numbers are falling sharply and the rollout of vaccines is proceeding reasonably quickly.
Boohoo styled the acquisition 'transformative' in its statement to the London Stock Exchange on Monday, but in some ways it merely builds on a precedent that the company had already set, having bought a suite of brands out of bankruptcy over the last couple of years.
Not only that, but the group had once again resisted an opportunity to get into physical, brick-and-mortar retailing, passing up the opportunity to take on any of Debenhams' branch leases. The read-across for retail landlords is not encouraging. Hammerson (LON:HMSO) stock - an extreme proxy for the sector - fell 2.9%.
Diversification is coming at the right time for Boohoo, which still hasn't shaken off the negative publicity around its supply chain issues. A broader business will dilute the overall reliance on immigrant-staffed sweatshops in the English Midlands, ensuring alternative streams of revenue and allowing it to shut down the most problematic cases. The stock has struggled since its last update on that issue, which showed how sensitive investors are to legal liability risks.
Boohoo wasn't alone in feasting on the carcass of the British high street sector on Monday. Its big rival ASOS (OTC:ASOMY) also confirmed that it's in exclusive talks to buy the Topshop, Topman, Miss Selfridge and HIIT brands from the administrators of Philip Green's collapsed Arcardia empire. Here again, there was - conspicuously - no talk of taking over any physical leases. Even the charms of TopShop's flagship store on London's Oxford Street are perfectly resistible for the modern fashion group, it seems.
The dynamics of both transactions are a stark lesson in the balance of power between the new and the old in fashion, with capital-light online names seemingly able to dictate their terms to the rest (JD Sports had shown the same principle at work in walking away from the Debenhams sale in December, while rival Frasers also decided last week it didn't need anything from either Debenhams or Arcadia). For Boohoo and Asos, however, the acquisitions just add more earning power at bargain prices. Boohoo stock rose 4.4% by mid-morning in London, while Asos stock was up 5.6%.