Boohoo: Is a brand breakup the best bet for the fallen pureplay giant?

Last Friday Boohoo told the City that it has successfully signed a new £222m debt financing agreement while also announcing the shock departure of boss John Lyttle and a review of options to “unlock and maximise shareholder value”.

Boohoo outlined the five brands within the group – including the respective Debenhams and Karen Millen brands and categorised Boohoo, boohooMAN, and PrettyLittleThing as the ‘young fashion brands’ within its portfolio.

A side of the business that thrived during the Covid pandemic amid a boom for ecommerce, Boohoo, boohooMAN and PLT have struggled in recent years.

The Boohoo Group’s issues have come as a result of many challenges, from the rise of fast-fashion giant Shein, which exceeded Boohoo’s revenue in its most recent trading update, to the fallout of PLT and its shoppers over returns, as well as concerns over its ethics and accusations of greenwashing.

So, would a break-up of the group be beneficial? What is the significance of Lyttle’s departure and why now? And is there a future for the once-loved fast-fashion brand? Retail Week explores.

Brand spin-off?

Despite Boohoo saying the group remains “fundamentally undervalued” and the review is intended to seek opportunities to create greater value for shareholders, recent reports suggest that a spin-off of some of its “better-performing brands” would be an attempt at boosting the fashion retailer’s plummeting share price.

While many are speculating that a sale of Debenhams and Karen Millen may be on the cards, Peel Hunt retail analyst John Stevenson says this wouldn’t provide the group with the answers it needs to solve its problems.

“Debenhams and Karen Millen are doing really well, they are really good brands,” he said. “Then you’ve got the core young fashion business which has had a variety of issues over the last few years. The question facing Boohoo’s younger brands now is how do they fit into the current market demographic and what is their relevance?

“If you break up the group and hypothetically sold Debenhams or Karen Millen, you’ve still got Boohoo sat there on net cash but that doesn’t answer the question. They don’t need to break up the group but what they do need to do is demonstrate the relevance of those younger fashion brands again.”

Shore Capital director Clive Black echoes this, but adds that the review is an “indication of weakness” and said it hints at a “period of distress for the fashion retailer”.

Black says that while nobody has definitive answers of how Boohoo can return to profitability and popularity once again, becoming attractive to the younger generation is key to whether or not it can pull off a turnaround.

“They [Boohoo] need to try and extract the best value they can to give the business a stronger financial constitution and hopefully get it back to being in a groove in terms of what the brand stands for, growing sales, rebuilding margins and profitability,” he said.

“The strategic review and carving off the portfolio is one thing but they have to get that core Boohoo brand back in a groove so that younger customers want to buy the product and be associated with the brand.”

Shock exit?

The departure of John Lyttle came as a surprise to many after his run as chief executive of the group for almost six years. The former Primark boss came into Boohoo as a so-called “safe pair of hands” and steered the business through a phase of growth and its international expansion journey.

Despite the reason for his departure remaining unknown, Stevenson says that you could argue it is the right time for Lyttle to move on and that a different skillset is required to drive Boohoo’s future turnaround.

“The challenges for the business are definitely different now,” he says. “At the time when John came in it was all about the internationalisation of the Boohoo group but now it’s about actually driving the creditability of the younger fashion businesses.

“You need someone who is really going to reinvigorate PLT and Boohoo. I don’t know exactly what’s gone on [with Lyttle] but it feels like a slightly different skillset is required now.”

While a successor is yet to be named and Lyttle is working with the board to “drive value” for shareholders in the meantime, speculation suggests that co-founder and executive chair Mahmud Kamani’s son Umar could be in the running to step up as group chief executive.

Having recently returned to the helm of PLT to mark “a new chapter” at the fashion brand, it remains to be seen if he himself will run the group or a if a surprise appointment is on the cards but the general feeling is that it’s time for a refresh at the top.

Kamani vs Ashley

The future of Boohoo and the result of the review will ultimately be determined by the interests of shareholders, one of which is Mike Ashley’s Frasers Group.

With a 26.1% in Boohoo to date, in comparison to co-founder Mahmud Kamani’s 12.5% among other minor shareholders, the pair are reportedly “scrapping” over the future of the fashion retailer.

“Ashley and Frasers is a really interesting one because I’m sure, given Ashley owns Flannels, he would love to get his hands on the Debenhams beauty business,” says Black. “I’m also sure within his wider ecosystem there would be quite a bit of interest in some other brands as well, including Karen Millen.

Black adds that while Ashley will inevitably be keen to get his hands on the businesses, it would need to be at as low of a price as possible – something Boohoo isn’t in a position to offer.

“Whether the two can meet, considering Frasers is the biggest independent shareholder in Boohoo, is an interesting juxtaposition,” he continued.

“I imagine the advisers [Rothschild and Ashurst] will be trying to bang the drum as hard as they can to get the maximum price for Boohoo because they’ve got a big loan to repay next August and they won’t want to be depending upon revolving credit facilities for liquidity on a long-term basis.”

So, while Frasers Group has an acquisitive reputation and it’s incredibly likely Ashley would want to add the likes of Debenhams and Karen Millen to his growing portfolio, whether this is in the best interests of the wider group remains in doubt.