Key details and analysis about Boohoo’s purchase of the Debenhams brand.
This week it was announced that Boohoo will be buying the Debenhams brand and website for £55 million. This marks the end of a drawn-out decline for the 243-year-old retailer.
Boohoo, which was only founded in 2006, is investing the equivalent of half of its profits from last year into the deal. In return they will receive one of the most well recognised brands on the high street, as well as one of the top 10 most visited retail websites in the UK. Each year the Debenhams website receives about 300 million visitors and takes £400 million. Consumers will therefore retain access to the Debenhams products; however, all 124 stores will close and more than 10,000 employees laid off. Boohoo will also use their existing infrastructure to supply the website and will start including some of their current brands to be sold alongside Debenhams pre-existing offerings.
This is a major step for Boohoo and provides an opportunity to diversify their business. This is because Debenhams generally retails goods at a higher price than Boohoo and has an older and richer client base, which should increase profit margins. The Debenhams brand also includes products that Boohoo does not sell, such as bedding and homeware.
Boohoo has already managed to shake off some of its recent image problems. In summer of 2020 it was found that Boohoo was paying workers in its Leicester factory less than minimum wage. There were also a number of health and safety concerns found in its supply chain. However, despite this, Boohoo’s sales increased by 40% in the build up to Christmas.
Debenhams has struggled to find a buyer, with both Mike Ashley and JD Sports losing interest late last year. At around March 2020, the company’s debt totalled about £760 million. The asset sale will therefore provide some solace to creditors but falls far short of the amount needed.
The main losers in the deal are undoubtedly the employees and the landlords. While the expansion of Boohoo might require additional staff, this is unlikely to mitigate the unemployment resulting from the physical store closure. It is also unclear what will happen to those stores in the future. Many Debenhams stores are centrally located and span multiple floors. With the current state of the retail sector there are no obvious replacement tenants. It seems likely that many of the stores will remain empty for some time, looming over high streets as a stark warning of things to come.