Coast’s rescue by Karen Millen is a family affair with one bigger, stronger sibling taking over its ailing sister.
Having lived more or less next door for years, Coast is now moving in. However, the businesses have been very closely connected for many years.
Coast was born in 1996 and acquired by Oasis two years later. In November 2003, Oasis Group was acquired by Baugur, an Icelandic company that was on a massive shopping spree, acquiring vast chunks of UK retailing.
In June 2004 Baugur, via Oasis Group, added Karen Millen to what some years later became known as Mosaic Group. Most of Mosaic was bought out of administration in March 2009 by a vehicle called Aurora, with Kaupthing as majority creditor and owner.
The complexity around Baugur, the Icelandic banking collapse and Kaupthing (an Icelandic bank that both financed much of the acquisition spree and had a significant stake) is not essential to unpick here. Except that today Kaupthing still owns Oasis and Warehouse, still owns Karen Millen and already owned Coast.
Confused? You should be!
Beyond the corporate incest of this latest deal, Karen Millen has now absorbed those bits of Coast deemed to be viable. Kaupthing itself was rescued by the Icelandic government some years back. It has been very keen to sell its retail assets for some time. This latest deal will not have changed that.
Old fashioned
Ownership structure aside, Coast is a specialist occasionwear retailer. Its latest accounts to February 2017 show sales of around £85m, making a very small pre-tax profit of £1.3m.
Some 76% of sales were in the UK through 24 standalone stores and 145 concessions. The collapse of House of Fraser (in which, by the way, Baugur was once the biggest shareholder) has left a £1m hole in Coast’s already very thin finances.
The trading issues for Coast have been growing competition, and perhaps a gradually less formal marketplace where the very idea of an occasionwear specialist seems rather old-fashioned.
“If anyone can make Coast a success, it’s Beth Butterwick”
Coast sat in the premium high street market, a sector which is hugely overcrowded. This oversupply is reflected in lots of corporate activity over recent years involving brands like Phase Eight, Whistles, Hobbs, Reiss, Jigsaw, Mint Velvet and Jaeger.
Coast is more niche than any of that list and less able to deal with growing pressure on trading economics.
And beyond the premium high street is the plethora of brands pitched just above. In today’s much more promotional market, aspirational brands whose regular prices might normally be beyond Coast shoppers are now becoming more affordable, more often.
Coast has struggled to make money for many years, saddled with high costs and onerous leases. This deal includes the vast majority of the stock, jettisons the standalone stores and international businesses in order to focus on UK concessions and online.
Karen Millen inherits a decent brand minus those chunky, expensive distractions. For Coast, some 600 jobs have been saved and it inherits the very strong Karen Millen leadership team.
Of course Karen Millen itself remains challenged but I understand EBITDA is positive and has been improving over recent years. It too is a £1m victim of the House of Fraser collapse. Nevertheless, I remain optimistic that it can be turned round.
It retains good brand equity and has an outstanding chief executive. If anyone can make Coast a success, it’s Beth Butterwick.
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