Administrations and Acquisitions: The Mis(s)fortune of Missguided

The Story:

Following its financial troubles, Missguided was rescued by the retail-focussed Alteri Investors last year who acquired a 50% stake in the business. After a failed restructure of the company (which included staff redundancies and Missguided founder, Nitin Passi, stepping down as CEO), Alteri struggled to sell the brand, recently appointing Teneo as administrators.

In a last-minute turn of events, Mike Ashley’s Frasers Group stepped in and acquired Missguided for £20 million.

So, what does all of this mean?

The Breakdown:

Let’s first explain a few key terms.

A failing company can go through three main stages before it is wound up (brought to an end), as explained below.

Selling a company of Missguided’s size is not easy. However, acquiring (buying) a company of this size is equally challenging. If a company is drowning in debt, common business sense would guide most of us to avoid trading with, let alone acquiring, a liability of this scale.

However, this is not the case with Frasers Group, led by Mike Ashley. The British businessman is best known for his retail empire and unique acquisition strategy which consists of acquiring financially struggling businesses at a lower market price, in the hope of selling them off at a profit later. This is called ‘distressed M&A’.

Pssst, we created an in-depth case study on Mike Ashley’s business strategy in our 2020 Commercial Awareness E-book!

The Contributing Factors:

Most news reports have quickly shifted the blame on generic factors such as inflation, rising living costs, Brexit, and the pandemic. While these factors certainly contribute to the overall demise of Missguided, it is useful to take a deeper look into more specific factors to this case study.

SUPPLY CHAIN COSTS

Decreasing sales meant decreasing demand. As such, the fast fashion brand could not keep up. This had a two-pronged, knock-on effect. Suppliers were not only owed millions of pounds in outstanding fees, but in a domino-like effect, many of them became at risk of going down themselves due to their heavy reliance on Missguided as a client. It therefore comes to no surprise that the company was issued with a winding up petition by its suppliers, most notably JSK Fashions.

What is a winding up petition? A winding up petition is one of the most severe legal actions that a creditor (a party whom money is owed to) can take against another business. If a winding up order is made by the court, the creditor then has judicial permission to appoint an insolvency practitioner to liquidate the assets of a company. This is usually a last-resort option when alternative forms of dispute resolution have failed. For more information, click here.

SHIFTING CONSUMER TRENDS

Another key reason for the brand’s failure is the recent consumer shift away from throwaway fashion. This has been caused by three reasons:

1. Shifting media focus: Missguided skyrocketed in popularity in 2018 during its time as the official partner of the popular TV show, Love Island. Aiming to promote sustainable and ‘preloved’ fashion, the programme’s partnership with eBay this year is a stark contrast to the fast fashion agenda that Missguided is commonly associated with.
2. PR disasters: A further nail in the brand’s not-so-sustainable coffin, Missguided has fallen into hot water several times over recent years, most notably in 2019 after its £1 bikini sale which raised concerns over the brand’s sustainability practices. While some time has passed since, these marketing stunts dealt a permanent blow to consumer confidence which has only softened further with the shift towards sustainable fashion.
3. European Union crackdown: New proposals suggest that the European Union is planning to tighten its reins on the fast fashion industry in the very near future. You can read the proposal document here.

CRITICAL ANALYSIS POINT: Sustainability is clearly an increasingly important concern for the average retail consumer. Rival fast fashion brands such as Boohoo and Shein (both of which were allegedly interested in acquiring Missguided) have also faced public scrutiny in this arena, yet their increasing popularity and growing revenue suggests that they have managed to circumvent sustainability issues more effectively than Missguided. With this being said, have consumers really shifted away from fast fashion, or just Missguided?

COMPETITION

In the eyes of the target consumer, Missguided’s rivals are clearly more popular, cheaper, faster, and more understanding of their shifting needs.

Fierce market competition has pushed rival brands to constantly diversify their business models (in other words, expanding a business through new opportunities and markets). Originally a purely online business, Missguided attempted to diversify by opening a handful of bricks and mortar stores a few years ago. However, this was short-lived as the running costs quickly outweighed the profits generated by the stores.

Once again, this could be linked to the brand’s sustainability issues. Rivals are increasingly taking advantage of the shift towards sustainability, using it as a core marketing point to expand their business further (although on the flip side, some could argue that this is greenwashing). Here are a few examples:

1. H&M recently opened a new store which is focussed entirely on sustainability, offering a lower quantity of products in comparison to the brand’s traditional stores. The interior of the store has been carefully redesigned, displaying products in a curated way to encourage shoppers to carefully consider their shopping choices rather than impulsively buy clothing as may be the case with fast fashion. The Metrocentre store also offers H&M’s Garment Collection and Recycling scheme, which allows shoppers to donate unwanted clothes (regardless of brand). The clothing is then recycled.
2. Channelling the most recent buzzword in the sustainability trend, ASOS have released a new ‘circular’ fashion range which is made from recycled, renewable, or innovative textiles and materials. This is paired with the brand’s partnership with Thrift+, which encourages consumers to sell their pre-loved clothes in return for credit points which can be used to spend on Thrift+, Asos vouchers, or donated to charity. Both initiatives are steps towards the brand’s pledge to ‘be more circular’. For more information check out this handbook.
3. Lululemon and H&M have recently been spearheading the ‘Fashion Climate Fund‘, an initiative which aims to reduce carbon emissions in global supply chains.

Miracle or Mis(s)take?

Acquiring Missguided was certainly a gamble for the Frasers Group, but it was also a very strategic decision.

Ashley’s retail empire largely consists of brick and mortar High Street brands (including Sports Direct, Slazenger). Granted that Ashley first manages to untangle the company from its web of unpaid debts, acquiring Missguided could offer the Group a golden opportunity to diversify (ironically). Frasers Group’s brick and mortar reputation has made it difficult to break into the ecommerce market and expand its online retail presence. However, acquiring Missguided has effectively prevented other well-established ecommerce brands such as Boohoo and ASOS (who also had their eye on Missguided) to strengthen their dominance even further in the online retail market, opening a potential gap for Ashley.

Of course, we should also look at the other side of the coin. Given Mike Ashley’s wealth of experience in this sector, rumours have began to stir that Missguided could return back to the High Street once again.

How likely do you think this will be?

This article was written by April (Founder of According To A Law Student (ATALS)). April is a first class Law graduate and an IP Paralegal. Her main blogging interests consist of Intellectual Property and M&A.