Just three years after buying Topshop and Topman, Asos is selling a 75% stake in the iconic British fashion brand, creating a joint venture with Heartland, an investment firm owned by Bestseller owner the Holch Povlsen family.
Under the joint venture, Asos will retain certain design and distribution rights for the brands, in exchange for a royalty fee, allowing it to continue selling the brands, with the proceeds of the sale set to “significantly strengthen” its balance sheet.
CEO José Antonio Ramos Calamonte says the deal “will accelerate our strategy to both offer customers the best and most relevant product and to turn Asos into a company that delivers sustainable, profitable growth”.
However, given Topshop’s former fashion clout, why is Asos stepping back from full control, and what does the future hold for both brands?
Why sell Topshop?
Many are probably scratching their heads at the decision to offload Topshop and Topman, and seemingly at a discount to what it paid for the businesses just three years ago.
Heartland will pay £135m for a 75% stake in the brands, with Asos holding the remaining 25%, substantially less than the £265m the online retailer paid for the pair in 2021 – although that figure did also cover its Miss Selfridge and HIIT acquisitions.
The price tag has raised eyebrows considering that the likes of Shein, PrettyLittleThing and Authentic Brands Group have all shown interest in snapping up Topshop in recent years.
GlobalData senior apparel analyst Pippa Stephens says the joint venture, alongside the news that Asos has launched a refinancing, “clearly indicates the troubles the digital retailer is still facing”.
She says: “Asos has suffered from a loss of relevance, with Gen Z shoppers preferring more affordable players like Shein and Cider, while its former millennial customers now find its designs too youthful, with some also trading up to premium brands that offer greater quality and value for money.”
Asos is currently undergoing a major turnaround right now. This includes a reset of its commercial model to focus on profitability, bringing the most relevant fashion product to consumers, and “moving faster”, including shortening the lead time between design and production to around two weeks.
However, turnarounds take time and while it’s bedding in, Asos’ balance sheet is taking a battering. Losses widened to £120m in its half year, although it said yesterday that its full-year profit is set to hit the top end of estimates.
The online retailer also launched a refinancing, which involves an offering of around £250m convertible bonds, and will also extend its facilities with investment firm Bantry Bay Capital to May 2027, with an option for a 12 month extension.
Asos said it intends to use the proceeds from the Topshop and Topman transaction to “substantially increase the balance sheet strength and flexibility of the company”.
Was Topshop working under Asos?
The relatively low price tag raises questions on just how successful an acquisition Topshop has been for Asos.
When asked if it paid too much for Topshop, Calamonte avoids directly addressing and says: “I’m not going to talk about the deal that was done originally, but I will say the transaction we’ve completed is the best one we had at the time”.
But how has Topshop been performing?
In 2023, Topshop and Topman generated around £200m in adjusted revenue, accounting for about 5% of Asos’ total revenue, with a gross profit margin of roughly 50% from sales through Asos.com and wholesale partners.
Of this revenue, 40% came from the UK. In 2024, the brands’ revenue has fallen but this has been largely in line with that of the wider decline of Asos group.
Earlier this year, the etailer said it expected full-year sales to fall between 5% to 15%, however yesterday it admitted that this would come in “slightly below” expectations.
Meanwhile, GlobalData figures show that since the business acquired Topshop and Topman, the market share for both brands has steadily declined.
In 2021, Topshop and Topman held a combined market share of 0.23%, but this dropped to 0.21% in 2022 and further to 0.19% in 2023.
Stephens says: “The brands, previously owned by Arcadia, have been largely forgotten about by consumers since they were acquired by Asos in 2021, as their ranges get lost among the thousands of products and other third-party brands available through the online pureplay.”
Why Bestseller?
Despite revealing it had received numerous unsolicited offers for the Topshop and Topman brands, Asos ultimately chose to partner with Heartland, an investment firm owned by Bestseller’s Holch Povlsen family.
This decision reflects a strategic move to leverage the strengths of Bestseller and Asos, as Anders Holch Povlsen, CEO of Bestseller, is the online retailer’s largest shareholder.
In fact, under Listing Rules, Heartland is considered a “related party” of Asos due to Povlsen’s 28% stake in the retailer.
Calamonte insists that the joint venture “is the result of a competitive process, which speaks to the strength of Topshop and Topman and the hard work we’ve done laying the foundations for their success”.
“In Heartland, we have an incredible partner with whom we have already a strong working relationship, and importantly, who has the expertise and resources to unlock new opportunities and bring customers globally the best of what Topshop and Topman have to offer.”
Heartland has invested in a diverse portfolio of companies including Asos, while Bestseller operates wholesale and retail businesses including Jack & Jones, Only and Vero Moda and makes over £4bn sales. It also operates around 2,800 stores.
Calamonte explains: “Heartland has the expertise for the brand to grow in areas where we are weaker, and channels where we are weaker”, allowing Topshop to become more accessible and exciting for consumers.
Stephens says that Heartland has a challenge ahead in bringing the brands back to life, however, she notes that Bestseller has been experiencing consistent growth. “Therefore, its fashion expertise makes it well placed to turn Topshop and Topman around, with more exciting designs and improved quality needed,” Stephens adds.
What’s next for Topshop and Asos?
It appears the Heartland deal brings a new focus on reinvigorating Topshop. A key move is the relaunch of the brand’s website – currently those visiting Topshop.com are diverted through to Asos.
Calamonte says: “The reason why we want to relaunch Topshop.com is because we think it’s a fantastic platform for the brand to be expressed as what it is in itself, and obviously in Asos, maybe we run the risk that the brand has been forgotten by some customers.”
But it is not just online where the pair could invest, with the prospect left open of Topshop returning to the high street.
Calamonte said: “We might open stores. We will consider it for sure, but there is no specific agreement.”
Another area of investment is making Topshop more agile with a faster supply chain. Calamonte admits:”This was something the brand lacked before”.
He says this is critical for the brand to be able to react swiftly to trends and offer relevant products in a timely manner, which will be more achievable now as its own distinct brand.
You could argue the joint venture gives Asos the best of both worlds.
The cash generated provides it with some much-needed breathing room to continue its turnaround plan. Meanwhile, if the partnership is successful, Asos stands to benefit from dividends.
Calamonte says: “We are true believers in the value of Topshop/Topman as two iconic British brands, and we want to be part of the future. We believe this brand is already creating value and will create much more value.”
CFO Dave Murray adds: “This is about ensuring long-term sustainability. It’s not just that Topshop is underperforming.”
The deal marks a pivotal moment for both the retailer and the iconic brand and could potentially give both a much-needed boost.
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