But that tight fit has a solution. Sell Topshop, the storied fashion brand acquired two years ago from the ruins of Arcadia, Philip Green’s retail empire that collapsed in late 2020.
A price similar to what Asos paid (around £300 million ($364 million)) would strengthen its balance sheet. The company recently renegotiated the terms of its £350m revolving credit facility, pending a test of its financial strength until next year. The facility will have him mature in 2024, so Asos will have to refinance this year. Bloomberg News recently reported that the company is in talks to add restructuring expertise to its finance team.
But there are other reasons why Asos should consider offloading Topshop.
The retailer was founded in the 1960s, but in the late 1990s and early 2000s, it partnered with supermodel Kate Moss to create a collection that sold its former iconic store on London’s Oxford Street. It attracted people and became a force of fashion. Then, in the years before Arcadia’s demise, it struggled to regain its fashion luster amid competition from Asos itself and rivals like Boohoo Group Plc and Associated British Foods Plc’s Primark.
Joining the Asos stable promised a fresh start. But today, without a UK store, the brand is still looking for its old magic.
Relaunched last fall, the first design was created wholly owned by Asos. Its new parent company has established a brand-dedicated digital storefront and a new monogram on its website. But Topshop doesn’t have a lot of recognition, especially among older customers who may not be regular shoppers at his Asos, and the name is as popular as other Arcadia brands such as Boohoo’s acquisition of Dorothy Perkins. Not marketed effectively.
Asos is aware of the shortcomings. New CEO Jose Antonio Ramos Calamonte is rethinking how Asos reaches customers and could influence Topshop’s marketing. However, there is strong debate about the name returning to the British High Street.
One of the attractions of Topshop in its heyday was finding skinny jeans, faux fur coats, and floral dresses in stores. These days, consumers are rediscovering their appetite for in-person purchases. Topshop can also be found at 100 of his Nordstrom locations in the US and Canada, thanks to last year’s acquisition of a minority stake in Asos’ former Arcadia brand.
But Asos is grappling with excess inventory, potential cash outflows, and hiring a finance director, and lacks the financial and administrative bandwidth to add a physical presence.
Of course, these series of problems mean that Asos is selling from a weak position. Also, there is an opportunity cost to let go of Topshop now.
Despite its low profile, Topshop is leading most of Asos’ growth, with sales up 105% in the year to August 2022 and up 200% in the US. Topshop jeans are currently the most popular womenswear jeans on the site, according to the company, and the label’s dresses were also popular. It may take a few more years for the brand to reach its full potential in its new home.
Then there is the question of who will be the buyer this time.
Clothing company Next Plc considered Topshop two years ago and has since made a string of deals, including investments in Reiss and Joules and the acquisition of the Made.com brand.
Frasers Group Plc founder Mike Ashley may have been interested after first missing out on Topshop. The sportswear retailer has acquired a roughly 5% stake in Asos and acquired online retailers His Missguided and I Saw It First. Meanwhile, Marks & Spencer Group Plc is also building its credibility in the fashion sector, acquiring Jaeger just weeks before Asos’s Topshop deal. Adding the brand could potentially reach new, younger viewers, as well as moms who remember Kate’s Moss days. Chinese fast-fashion retailer Shein may also be interested.
So, despite its shortcomings, exploring Topshop’s future has its merits.
When it reopened last fall, Asos described it as “a new chapter.” Perhaps it should be piloted by someone else.
Bloomberg Opinion Details:
• Christmas Darkness in Retail Was Overrated: Andrea Felsted
• When heirs and heirs don’t care about each other: Martin Ivens
Outspoken CEOs are a rapidly dying breed: Beth Kowitt
— With help from Elaine He.
This column does not necessarily reflect the opinions of the editorial board or Bloomberg LP and its owners.
Andrea Felsted is a Bloomberg Opinion columnist covering the consumer goods and retail industries. Previously, he was a reporter for The Times of Financial.
More articles like this can be found at bloomberg.com/opinion.