Corporates Turn Their Focus to Mitigating Longer Term Risks in a Post-Pandemic World

Corporates Turn Their Focus to Mitigating Longer Term Risks in a Post-Pandemic World

After 18 months of retail lockdowns, a shift to essential shopping and record levels of unsold inventory, fashion players’ strategies remain focused on mitigating ongoing risks in light of successive waves of COVID-19 infections and a slower than anticipated vaccination roll-out. 

Listings on global stock markets are running at a record pace, with both the number of deals and values at their highest levels over the last 20 years. ​Fashion players are no exception, and merger and acquisition activity is expected to accelerate in the short- to medium-term, as brand portfolios and geographic footprints are streamlined.

​To strengthen and streamline brand portfolios, industry players are divesting underperforming brands. This is taking place in the form of spin-offs or sell-offs.

The need for more versatile business models is also being addressed so companies can respond more effectively to the rapidly changing business environment. Fashion players are experimenting with concepts such as resale or on-demand manufacturing to support sustainable initiatives and better manage the volume of unsold clothes. ​

M&A activity accelerates as the pandemic recedes

As the pandemic recedes, M&A activity across fashion is accelerating, as consumer demand concentrates on a handful of top-performing brands and companies benefit from low borrowing costs, and in many cases, more favourable valuations post-pandemic.

M&A strategies within the fashion space are aiming for tightened consolidation (in the form of multi-brand conglomerates), vertical integration (targeting supply chain and retail enhancements), empowering sustainability efforts (second-hand marketplaces) and overall digitalisation. The last quarter of 2020 saw three major acquisitions totalling nearly USD20 billion. Amongst others this included the VF Corp/Supreme deal for USD2.1 billion, as well as Moncler’s acquisition of menswear brand Stone Island for USD1.4 billion.

By H1 of 2021 alone, we have already seen 18 major acquisitions in the fashion space. These include the long-awaited LVMH Tiffany acquisition for USD15.8 billion, as well as the Etsy acquisition of global fashion resale marketplace Depop for USD1.6 billion.

Along with M&A, IPO activity is also accelerating as high-performers go public. Examples include the likes of online retailer Mytheresa and peer-to-peer reseller Poshmark.

UK digital players buy up struggling brands to expand their reach

In the UK, leading online fashion players acquired brands and retailers that were struggling with decreased store traffic and lower demand. In January 2021, British online fast-fashion retailer Boohoo acquired the in-house brands and website of department store Debenhams. Boohoo also bought the online businesses of British fashion brands Oasis and Warehouse in June 2020. Meanwhile, another British online fashion retailer, ASOS, acquired Topshop, Topman, Miss Selfridge and HIIT brands from British fashion retail group Arcadia in February 2021.

With the rise of e-commerce, shopping malls and stores have lost their lustre. The recent acquisitions by Boohoo and ASOS emphasised the growing power of e-commerce players in the industry.

Through acquisition, Boohoo plans to expand into fashion-adjacent categories such as beauty, sports and homewares through the Debenhams marketplace. By acquiring strong brands such as Topshop, which already have an established presence in key markets such as the US and Germany, ASOS will aim to grow its online business internationally.

Similarly, there is a rise in retail partnerships as a means of survival. Moving forward we can expect to see more partnerships between store-based operators and pure digital players which are a quick, and potentially cheaper route. This would be a viable option for department stores to develop stronger digital offerings, and for digital players to gain some access to storefronts.