How COVID-19 Fueled the Fortunes of Asos, Boohoo and Dr. Martens

LONDON — The COVID-19 typhoon may have laid waste to a host of businesses, but for some, it has been the wind beneath their wings.

For Britain’s pure-play online retailers, such as Boohoo and Asos, and for brands with strong e-commerce platforms like Dr. Martens, the pandemic has delivered an unexpected boost to these businesses, empowering them to take risks; snap up competitors they might not have considered 12 months ago, and leverage their robust balance sheets to woo potential investors.

The virus has created a new retail Darwinism, with these digital-first businesses using their extra profits, and power, to rob physical retailers of market share, and to pounce on the corpses of already ailing businesses killed off by the protracted lockdowns in cities worldwide.

“The rapid adoption of e-commerce due to COVID-19 has played into the hands of pure players like Asos and Boohoo,” said Chris Elliott, head of market insights at Edge by Ascential, a consultancy that works with global brands and retailers on e-commerce strategy.

“Even once lockdown measures are eased, the ease of e-commerce will keep many shoppers online, and out of stores. All of this means that Asos and Boohoo are in strong financial positions, currently and certainly in the future, to consider acquisitions. We could see these two retail titans reshaping online retail via their sprawling digital marketplaces.”

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According to IMRG Capgemini’s Online Retail Index, 2020 was a “standout year in e-commerce,” with online retail sales up 36 percent year-on-year, the highest annual growth seen since 2007.

In a report published last week, “The Year That Was 2020,” Springboard, which measures activity in physical stores across the U.K., noted that annual footfall dropped 39.1 percent, hitting the lowest level ever recorded.

“COVID-19 changed the retail industry forever,” Springboard said, adding the slide in footfall “unsurprisingly translated into a huge decline in sales in bricks-and-mortar stores of 20 percent in 2020, compared with a decline of 3 percent in 2019.”

Online spending increased significantly as a result. According to Springboard, it rose to 27.4 percent of total retail spending in 2020, compared with 19.1 percent  in 2019.

That’s why the first week of February will be a telling one for British, and even international, retail.

Boohoo, which bought Debenhams last Monday for 55 million pounds, is poised to add Dorothy Perkins, Wallis and Evans, three brands from the defunct Arcadia Group’s stable, to its growing portfolio of high street names.

The move confirmed Bernstein analysts’ speculation that, given Boohoo’s robust cash position, the online fast fashion retailer was well placed to make further strategic M&A investments funded by cash, “even beyond the 140 million pounds remaining of the equity raise from last year.”

Last summer, in the thick of lockdown, Boohoo was already taking advantage of the COVID-19 crisis, buying Warehouse and Oasis, two longtime high street retailers that were forced to wind down during lockdown.

Asos, meanwhile, has confirmed it’s in exclusive talks to buy Arcadia’s three jewels, Topshop, Topman and Miss Selfridge (minus the real estate) and add them to its flourishing, multibrand platform.

Until recently, Asos wasn’t even considered a major contender, with bricks-and-mortar-focused rivals such as Next, Mike Ashley’s Frasers Group, JD Sports and Authentic Brands Group long mooted as top suitors for the brands.

But now, Asos is riding high. In the four months to Dec. 31, the company said revenue growth surpassed expectations due to a variety of factors including “stronger than anticipated” consumer demand.

The online retailer said its multibrand model and strong execution “enabled us to capture available demand as consumers increasingly shopped online.”

In the U.K. specifically, Asos noted that the pre-Christmas bounce was due partly to physical retailers being forced to shut during most of November and December.

Asos added that during the period it benefited from lower return rates, as people were thinking more carefully about what they purchased — an added COVID-19-related bonus.

Total group revenue in the period rose 23 percent to 1.36 billion pounds, with the active consumer base up 1.1 million to 24.5 million.

Asos said that, given the ongoing COVID-19 restrictions and online shopping trends, it now expects its 2021 profit before tax to be “at the top end” of current market expectations, or around 170 million pounds.

Dr. Martens may be a completely different business from Boohoo and Asos, selling chiefly through brick-and-mortar outlets, but that didn’t stop its private equity parent Permira from touting the bootmaker’s digital credentials.

On Friday, ahead of Dr. Martens’ successful pre-listing on the London Stock Exchange, Permira argued that a growing e-commerce business has been — and will continue to be — crucial to the brand’s success.

Permira’s pitch to investors — that Dr. Martens had quickly metamorphosed from “a manufacturing-oriented, wholesale business to a multichannel, consumer-first, digital-led business” — was clearly a compelling one.

The private equity giant also noted that its investment in Dr. Martens e-commerce platform has driven “strong online growth” from 7 percent of revenues at entry to 20 percent in 2020.

“This strong momentum has continued through the COVID-19 pandemic, with revenues and EBITDA growing 18 percent and 30 percent year-on-year respectively in the six months ended Sept. 30, 2020,” Permira said.

No wonder then, that the bootmaker pre-listed on the LSE Friday with an offer price of 3.70 pence a share, the top of the range set out last week.

The shares were oversubscribed eight times, and once they start trading publicly on Feb. 3, the company’s market capitalization will be about 3.7 billion pounds.

Online is trumping physical retail and there is no turning back. Indeed, industry watchers argue that even when physical stores do re-open, online retail will continue to dominate the landscape, and the two channels will need to find new ways of living side-by-side.

Diane Wehrle, insights director at Springboard, said that “if COVID-19 has taught us anything, it is the need we all have for human interaction and sensory satisfaction, and this is likely to drive visits and spend in stores and destinations.”

Despite that, Wehrle added that “what is likely to continue to change in 2021 is the types of destinations that consumers visit, and the frequency, and when they do so. Much of this change will be driven by the shift to home working.”

She also argued that a whole new demographic of “store only” shoppers has pivoted online and will remain loyal to the channel “for at least some purchases.”

According to research from Edge by Ascential, online apparel sales in 2020 grew 21 percent, higher than the forecast 13 percent prior to the pandemic. E-commerce now makes up 43 percent of apparel sales in the U.K. “and this is continuing to grow,” the company said.

A separate study by Juniper Research, a digital technology consultancy, noted that total spend via digital wallets will exceed $10 trillion in 2025, up from $5.5 trillion in 2020.

Juniper believes that in 2025, contactless and e-commerce payments will account for 50 percent of total wallet spend, from just under 36 percent in 2020.

It’s no wonder, then, that Boohoo is extending its warehousing capabilities, with a new site to open in April, creating up to 1,000 jobs.

The company saw a 40 percent spike in group revenue to 660.8 million pounds in the last four months of 2020. It said that for the fiscal year ended Feb. 28, revenue growth is set to be 36 percent to 38 percent, well ahead of previous guidance.

Boohoo even managed to shrug off any negative impacts from COVID-19 during the period.

The company said it’s expecting an adjusted EBITDA margin for the year “at around 10 percent, despite COVID-19 related headwinds for distribution costs, planned gross margin investment and accelerated discretionary customer acquisition spend.”

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