About Boohoo’s business model
Boohoo is an online retail company established in 2006, headquartered in Manchester, England. Their target market is 16 – 30 year olds and they have a huge social media presence with over 10 million followers across all their social media platforms . Boohoo specialises in making cheap replicas of celebrity fashion styles with quick clothing turnarounds keeping their consumers looking trendy . Boohoo adds new dresses, tops, accessories and shoes to their website daily. They use a ‘test and repeat’ model producing small batches of lots of new styles, and with 40% of their production in the UK, they are able to deliver quickly . Recently they have been investing in distressed physical highstreet stores with a subpar online presence.
Throughout this article, I will be evaluating whether there is a trend of online retailers redefining the highstreet by taking it online by acquiring distressed highstreet stores. I will explore Boohoo’s aggressive acquisition streak during the pandemic and touch on similar online retailer ASOS as a supporting case. Ultimately concluding that the physical highstreet is changing and online stores are growing in importance.
Boohoo during the pandemic
Boohoo’s business model allows for versatile clothing creation. When national lockdowns were announced and consumers needed more loungewear over going out clothes, Boohoo was able to adapt easily. However, the cheapness of their supply chain came at a cost. The need to make clothes cheaply to maintain profit margins meant that Boohoo’s manufacturing duties were being subcontracted i.e. the manufacturers Boohoo gave the work to outsourced it to cheaper, less ethical contractors. This meant that last summer Boohoo was caught up in an ESG (environmental, social, governance) scandal. Boohoo was accused of further spreading COVID-19 due to the poor working practices which weren’t adhering to government guidelines. According to Labour Behind the Label (trade union) representative Meg Lewis, employees were allegedly told to still attend work despite testing positive for COVID – this was even linked to the rising rates of COVID in Leicester . Social distancing breaches were commonplace at Boohoo’s Leicester warehouse in which workers were being underpaid at £3.50/ hour and overworked – Boohoo were essentially flouting COVID-19 guidelines . Boohoo launched their own independent investigation into the accusations and found no evidence of paying workers £3.50/hour and Boohoo invested £10 million “to eradicate supply chain malpractice” . This ESG scandal meant that Boohoo’s eligibility to be included in ESG funds was being reevaluated. Additionally, it had a detrimental effect on its share price and reputation – which makes its aggressive acquisition approach during the pandemic even more interesting .
In May 2020, Boohoo were able to raise £198 million from investors to take advantage of acquisition opportunities of struggling retail businesses struggling in lockdown .
Oasis + Warehouse
Boohoo acquired fashion brands Oasis and Warehouse in June 2020 for £5.25 million, after Oasis and Warehouse went into administration in April 2020. The acquisition meant Oasis and Warehouse cut 1,800 jobs, shut down 90 of their UK stores and 437 of their concessions in department stores including Debenhams and Selfridges in March due to lockdown related pressures on sales . Boohoo was able to integrate Oasis and Warehouse into their online business, and the brands generated £47 million in revenue in the year prior to Boohoo acquiring them.
Boohoo acquired Debenhams’ intellectual property, including customer data, for £55 million in late January 2021. Boohoo will not be acquiring the Debenhams stores – meaning all 118 highstreet stores will be closing causing a loss of 12,000 jobs . Boohoo CEO John Lyttle plans on keeping the heritage of the company alive whilst transforming the brand to fit into the ‘current market environment’ . Debenhams has been struggling throughout this lockdown, going into administration for the second time within two years in April 2020. Through this acquisition, Boohoo can expand into beauty, sportswear and homeware offerings which Debenhams is already well versed in. Debenhams is one of the UK top 10 retailers in terms of website visits with 300 million hits and £400 million worth of sales in 2020 as of August 2020 
The fall of Debenhams can be attributed primarily to two things: firstly it became relatively irrelevant as its business model meant it was unable to keep up with the latest fashion trends and stock the trendiest clothes in the increasingly fast-paced fashion environment. Secondly, it grew its physical presence too rapidly, as in 2006 (the year Boohoo was founded) Debenhams announced that it would be doubling its number of physical stores, even though shopping habits were already starting to shift online . An acquisition by online only retailer Boohoo seems to be the perfect remedy to this issue. According to Boohoo, the three brands had 2 million active users in the last year which would further boost Boohoo’s user base .
Arcadia – Burton, Dorathy Perkins & Wallis
Boohoo has acquired Burton, Dorothy Perkins & Wallis from under the Arcadia group for £25.2 million in February 2021 resulting in 2,450 job losses . The three brands made £428 million in revenue before interest, tax, depreciation and amortisation last year. Burton is a menswear brand established in 1903 with annual sales of £129 million. Boohoo hopes this acquisition would aid in growing their BoohooMAN range which currently accounts for <10% of the Boohoo group sales . Dorothy Perkins is a womenswear brand targeted at women aged 25 – 40 years old of all shapes and sizes . The rationale behind Boohoo acquiring Dorothy Perkins and Wallis is diversification. Wallis is focused on producing high quality workwear and Dorothy Perkins has an older customer base . Boohoo would need to revamp these businesses to make them align with the rest of the fashion forward Boohoo franchise.
A trend: ASOS
It becomes even more evident that the online fashion world is overtaking the UK highstreet with the flurry of purchases made by UK online-only fashion retailer ASOS. ASOS is the UK’s largest online-only fashion retailer – it was founded in 2000 and has its headquarters in London, and has a target market age of 16-34 year olds . Similar to Boohoo, ASOS has a fast fashion supply chain, allowing them to keep up with the latest trends and deliver clothes quickly and cheaply. Like Boohoo, ASOS has been purchasing struggling highstreet stores. In February 2021, ASOS acquired Topshop, Topman, Miss Selfridge and HIIT brands from underneath the Arcadia umbrella paying £265 million for the brands, £30 million for existing inventory and £35 million worth of forward purchasing orders. The deal means that approximately 13,000 employees will be transferred over to ASOS, but 70 of the group’s physical stores will be closed including the flagships on Oxford Street . The brands went into administration alongside the rest of the Arcadia umbrella in November 2020, despite a growth in online sales. The growth in sales wasn’t enough to sustain their physical presence and so they have remained in a vulnerable position .
It seems that the online clothing stores have come out on top during this pandemic, meaning the high street as we know it could be evolving. The business structure of Boohoo and ASOS means they employ their target audience, with the average employee age at both companies below 30. This is in stark contrast to the companies they acquired which had a top-down decision making approach, in which fashion decisions were made by people out of touch with the customer segment . For Boohoo, it may be hard to increase their share price because of their earlier supplier issues leading to investors having ESG related concerns about the health of the business. Boohoo is still trailing behind its competitors ASOS and Zalando in terms of share price despite sales being set to double by 2024 . Overall, it seems the face of the high street is changing, with online shopping becoming increasingly important.
Finalist PPE student at University of Leeds with an interest in an array of financial topics writing articles for the financial advisory finfoc team.