Reebok-owner Authentic Brands Group is rumoured to have its eye on beleaguered Asos' Topshop brand, a move which could provide the fast-fashion online pureplay with some much-needed relief and an opportunity to focus on its core offering.
ASOS acquired the Topshop brand together with Miss Selfridge and HIIT brands for a cash consideration of $321m in 2021 following the collapse of Phillip Green’s UK High Street Empire, Arcadia.
The deal formed part of a joint venture (JV) with Nordstrom. Asos said at the time the JV would drive the growth of the brands and pave the way for exploration of a new wider strategic partnership aimed at building greater awareness and engagement in the US and Canadian market.
However, it shifted the offering to online-only, not purchasing the physical stores. Industry analysts have since conceded that following the deal, it’s not actually “done much” with the Topshop brand.
In fact, in its most recent set of FY23 results, Asos recorded a £10.7m amortisation cost as well as consultancy and restructuring costs of £31m, contributing to a loss of £296.7m for the period.
The announcement came as Asos pushed back the results announcement by a week.
Neil Saunders, analyst at GlobalData, explains: “As Asos is not performing well, it is looking to reduce complexity in its business and potentially raise money from disposing of brands that are not delivering. Asos had some big ambitions when it acquired Topshop, but it has not done all that much with the brand. There is a sense that it has just become an also-ran part of the Asos offer. There were some announcements around a partnership with Nordstrom, but they have not amounted to all that much.”
Inside the deal
The Topshop brand, had shown promise for Asos, explains Eleonara Dani and Clive Black of Shore Capital.
“While the sale might offer ASOS a much-needed cash injection, it also presents a conundrum for the retailer's long-term prospects, in our view. Topshop had been a key growth driver for Asos since its acquisition. Selling it now could severely impede the company’s recovery efforts, particularly when it has already faced challenges from new policies such as charging customers for returns and restricting buy-now-pay-later options.”
Asos did not comment on the speculation it is looking to offload the Topshop brand.
While Pippa Stephens, apparel analyst at GlobalData, also sees this as an attempt to recover profitability, she warns the decision must not be “taken lightly” as the brand has been “one of its top performers in previous years.”
She explains the news earlier this week that Asos is considering the sale of Topshop to Authentic Brands Group (ABG), after only acquiring it in 2021, is likely an attempt to recover profitability.
But, she adds: "The brand fits well with Asos’ other ranges and resonates with its older shoppers who grew up with it, so has potential to become a shining light for the platform once again if given the right attention.
"However, Topshop’s products can get lost among Asos’ extensive offering, so if the rumoured sale were to happen, it could provide greater visibility to its ranges, especially if ABG decided to relaunch Topshop’s physical stores.”
Why the deal matters
Authentic Brands Group, which did not comment on the speculation, has been on an aggressive acquisitive spree in recent years, having acquired Rockport out of bankruptcy in July, Vince Holdings in April as well as Boardriders in the same month, while also acquiring British lifestyle brand Ted Baker a year ago.
Most recently it inked a deal with SPARC Group and Simon Property Group to take a minority interest in Shein, with Shein acquiring one-third of Forever 21’s US operator SPARC Group.
It's safe to say it has the knowledge and expertise to help a brand like Topshop, thrive.
Saunders explains: “Authentic looks for brands trading below their potential that they can try and revive and grow using their strong operating network. Topshop arguably fits into this category and Authentic will be looking at how it fits into their portfolio and what they can do to develop it. As a fashion brand focused on younger shoppers, Topshop is potentially a good fit for Authentic. They already have younger brands like Aeropostale and Forever21 in their stable, but Topshop helps round out the offer.”
Key takeaways for the fashion industry
The recent set of results from the UK’s biggest fashion etailers, Boohoo and Asos, both suggest one thing – the sector is struggling.
While Asos said sales could fall by 5% to 15% in 2024.
Where the two weathered the storm battering most High Street retailers during the Covid pandemic, their sparkling streak is quickly being snuffed out by the likes of Asian ultra-fast fashion majors like Temu and Shein, attracting customers with their uber-low prices at a time when cost of living is surging.
Under Authentic, there is the possibility we could see the return of Topshop as a physical store format.
“Under Asos, Topshop is part of a group with many challenges which means it often gets overlooked and won’t get the investment needed for growth. Asos will benefit from raising some money from the sale,” Saunders asserts.
“Topshop will be better off under the ownership of Authentic Brands. The group has the ambition and the skills to help drive growth and has a lot of expertise in reviving brands.”
But the question is where does the offloading of brands to stabilise the balance sheet end? One thing is certain and it is that fast-fashion pureplays must look at other potential growth avenues in order to stay relevant in a market that is becoming increasingly volatile.
