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bonyadi magazine
Analysts and investors deliver 'wait and see' verdict on Boohoo's rebrand to Debenhams
Boohoo Group… sorry Debenhams Group… shares spiked for a while on Tuesday after the fast-fashion-to-digital-department-store company announced its name change to Debenhams. But a rise from 26p each to 27.7p then a subsequent slide back to just over 26p made it clear that its name change and marketplace pivot wasn’t impressive enough for those not invested in the business to buy in big-time
Back in 2020, the share were trading at more than £4 each so it’s clear that there’s a long road ahead for the business before it can be said to have recovered its mojo
Having seen the reaction as far as the share price is concerned, what are interested parties and analysts saying about the rebrand
Well, as far as one of the biggest interested parties is concerned — Frasers Group — we’ve heard absolutely nothing. We know Frasers isn’t afraid to put its head above the parapet and make its feelings known, but it seems to be taking its time about formulating its response
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Frasers is Debenhams Group’s biggest single shareholder and only last week it emerged that it had raised its stake again, from just over 28% to a little over 29%
Given the well-publicised spat between Frasers and Boohoo/Debenhams over the latter’s governance, we assume Frasers wasn’t told in advance about the big changes announced yesterday
And while they may eventually lead to a Boohoo recovery, it must have been bittersweet news for Frasers majority owner Mike Ashley who’d long coveted Debenhams
He’d built up a big stake in that business during the last decade and was keen to take it over. But his stake was wiped out when the firm went into administration and was bought by Boohoo. So we await Frasers’ press release/open letter/stock exchange announcement with interest
Cautious analysts
As for analysts, like the firm’s other shareholders, they remain to be convinced
Mark Rogers, MD of The Motley Fool UK, the financial and investing advice company, clearly sees the potential in the moves. But he also recognises the dangers and remarked on how the fortunes of the various parts of the Boohoo/Debenhams empire have evolved in recent years
He told FashionNetwork.com: “It's been a stunning fall from grace for the Boohoo brand. This move would have seemed unthinkable just a few short years ago, when Boohoo's valuation was topping £5bn, and the Debenhams brand seemed destined for the retail scrapheap
“But the latest results show just how badly Boohoo's Youth Brands are struggling — and how desperate management is to pivot to something showing some signs of life
Rogers recognises that Debenhams has become the star performer for the business but told us that “while some of the early results from the Debenhams online-only store are encouraging, it might be a bit early to declare ‘Debenhams is back
That’s a reference to the upbeat headline of the press release Boohoo/Debenhams issued on Tuesday announcing its new name and the other changes
Meanwhile analyst Chloe Collins, head of apparel at GlobalData, believes the rebrand “highlights how much its youth fast fashion brands — PrettyLittleThing, boohoo.com, and boohooMAN — continue to struggle. Youth brands GMV pre returns plummeted in FY24/25. This comes off the back of an already disappointing year in FY23/24, when the group’s total GMV fell 13.3%
She highlighted the role of Shein in impacting the results with the Chinese rival able to do the things Boohoo was good at — ultra-fast, ultra-cheap fashion — even faster and more cheaply. She also said the pivot of young shoppers to towards the resale market, as well as smaller capsule wardrobes, is a problem for the group
Collins conceded that “dropping the Boohoo [Group] name is likely also an attempt from the company to ditch the negative connotations associated with it in terms of sustainability and quality credentials
But she believes that consumers will only be convinced about this if they see tangible improvements. “Consumers are more eco-smart than ever, and demand transparency,” she explained. “PrettyLittleThing rebranded last week, attempting to reposition itself with more elevated, timeless styles. However, the reaction to this has been mostly negative, with the brand failing to justify its new higher price points with either improved quality or better environmental credentials and alienating its youngest followers who do still want trend-led styles, who now have even more reason to turn to Shein instead
While she conceded that with Debenhams likely to overtake the Youth Brands in terms of turnover, as well as profit, there’s some logic to the changes, she’s less convinced by the pivot to a marketplace model for the whole business
“Marketplaces continue to outperform within the retail market, thanks to their wide range of brands and agile online operations, meaning they bring superior convenience to shoppers,” she said. “The group is therefore planning to apply this marketplace model to the rest of its business, including youth brands and Karen Millen, in hopes of seeing a similar success. However, this is unlikely to work, given the waning desirability of these brands and Shein’s marketplace ambitions
Optimistic stance?
However, a Panmure Liberum analyst note the Debenhams Group shared had a more upbeat view of the transformation plan
It said the Debenhams marketplace “is the growth driver, the biggest contributor to group profits and the engine behind the strategy to turn the fashion brands around. The group sees potential here for a multibillion-pound GMV business generating 20% EBITDA margins. While sales in the Youth Brands continue to decline, there is now a plan to turn these around. Further cost savings, lower stock risk and launching fashion marketplaces are all part of a plan to further leverage the Debenhams playbook and technology
“From buying the Debenhams brand out of administration in 2021, the group has done a major turnaround of Debenhams to the extent that it is now the engine of growth… the most profitable part of the group generating a 12% EBITDA margin and will serve as the blueprint to turn around the Youth Brands
And it highlighted how CEO Dan Finley, the man who turned around Debenhams and is now in charge of the whole company, also had a big impact on the firm’s acquired fashion brands such as Wallis, Burton, MissPap, Coast, Oasis, Warehouse and Dorothy Perkins. That could be key for the future of the Youth Brands
Panmure Liberum said: “Finley… led the turnaround [of] the fashion labels which were loss-making three years ago and are now contributing mid-single % EBITDA margins. This serves as a blueprint as to what can be done in the Youth Brands
The investment bank and corporate broker has lowered its sales forecasts for the Boohoo/Debenhams business for FY26 and FY27 mainly because it believes the turnaround will take some time. Yet overall it sees cash flow starting to improve and major potential for the rebranded group
“The group has successfully transitioned the [fashion] labels business from loss-making to a 7% EBITDA margin business now by focusing on profitable sales and leveraging the Debenhams platform. We see potential for the Youth Brands to be converted to a smaller size but more profitable model over the medium term, something that we do not assume in our forecasts, but it could be a source of material upside,” it said
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