A view from Laurence Green – Properly managed, the mental real estate that an organisation can build is typically more valuable than its physical real estate.
Asos acquires Topshop. Boohoo buys Debenhams. French Connection is in takeover talks. It’s been musical chairs in fashion circles over the last few weeks. Bewilderingly so, it seems, for some more nostalgic commentators; entirely plausibly for the millennial shopping cohort (or, indeed, anyone who has noted the market caps of the acquirers and the indebtedness of their targets.)
The overwhelming narrative is, of course, the death of the high street: how fashion has moved online and how traditional players have failed to keep pace with modern consumer behaviour and re-invent their business model.
Even in advertising circles, most of the commentary is the same: digital fashion has displaced, or at least brutally disrupted, analogue. We settle for that story, perhaps because it echoes our own, but there’s another one just beneath the surface that speaks to our industry’s time-honoured raison d’être: a story we must tell more often, and more insistently.
In short, Asos and Boohoo have bought the brands in question, rather than the businesses. More precisely put: in the end, the value residing in the respective businesses lay almost entirely in their intangible assets. Just like the marketing folk always said.
Asos’ £295m bid comprised £265m for Topshop and its sibling brands, and a mere £30m for stock in hand; Boohoo paid £55m for the Debenhams brand and website. No stores featured in either acquisition, and it would be a surprise if French Connection’s suitors were eyeing what remains of its physical retail footprint rather than what remains of its “mental availability”.
One hundred years on, and in a category far removed, they are extreme examples of Quaker Oats chief executive John Stuart’s famous dictum that: “If this company were to split up, I would give you the property, plant and equipment and I would take the brands and the trademarks and I would fare better than you.”
Brands in their own right, of course, Asos and Boohoo both demonstrate an intuitive understanding of Stuart’s essential point: that, properly managed, the mental real estate that an organisation can build is typically more valuable than its physical real estate, albeit it exists in the minds of the customer than in the books of the business. (Too few companies report on the health of their brands, let alone go to the trouble of actually valuing them.)
Citing Topshop’s strong equity in the UK, Asos’ press release couldn’t have been clearer. “The brands we have acquired are strong consumer facing brands that have continued to grow through key channels and we see a significant opportunity to drive further growth for these brands globally.”
Both acquisitions, of course, are bittersweet examples. Unwanted stores don’t just mean empty retail but also a very human toll, in terms of redundancies.
More prosaically, both Topshop and Debenhams speak to value destruction as well as creation: put simply, both brands were worth more in their prime.
That they have been sold for relatively small beer (by way of comparison, VF Corporation bought Supreme a few months ago for $2.1bn) is not just a consequence of the shifting sands of buyer behaviour – or lack of vision on behalf of their respective proprietors – but also of businesses increasingly run for short-term return rather than long. A planning horizon typically antithetical to brand-building.
While their ownership structures were dissimilar, both were more intent on extracting cash than investing it, let alone innovating; both oversaw the diminution of the customer experience from their old-school department store and Oxford Street flagship highs.
Beneath the death of the high-street narrative, then, these fashion takeover tales are an emboldening story for brand managers… and a warning shot.
Despite our industry’s philosophical lurch towards immediacy of response, “brand” is not some ethereal or outmoded concept but a palpable store of value in terms of future sales and – as it happens – in case of a future sale. Sales today are only part of the story: brand equity remains the big win. But equity, once built, must be preserved.
Laurence Green is executive partner at MullenLowe Group