Authentic Brands Group (ABG) has expressed interest in acquiring both Debenhams and Arcadia, according to reports. This development could potentially change the dynamics of the competition, as ABG owns several well-known labels and has significant financial resources. Frasers Group chief Mike Ashley is also racing to secure a deal with Debenhams, with a particular focus on the online beauty business. ABG’s entry into the race makes them a formidable competitor against Frasers Group and Boohoo Group, both of whom are known for their acquisition strategies.

ABG’s interest in these troubled businesses is significant due to the impact it could have on their closely linked operations. Arcadia is the largest concession operator within Debenhams stores, generating a turnover of £117 million last year. With a reserve of over $1 billion, ABG has the financial backing to compete with other potential buyers.

ABG’s backing includes Leonard Green & Partners, a California-based fund. An important aspect of ABG’s strategy is recognizing the value of physical retail while also understanding the importance of e-commerce. The company is reportedly planning to open a London office to expand its operations and further establish its presence in the retail market.

While it remains unclear whether ABG will make a bid, not all of Arcadia’s brands are expected to be of interest. Arcadia has already faced declining sales even before the pandemic, with brands such as Evans, Miss Selfridge, and Outfit reportedly generating losses. Additionally, Arcadia’s online sales account for only 19% of its total sales, although the online margins are more favorable compared to its physical store margins.

Meanwhile, Mike Ashley and Frasers Group’s stance on Arcadia is still uncertain. However, Ashley has shown a clear interest in acquiring Debenhams. His focus is primarily on the web operation, which is valued at £500 million and would allow Frasers Group to enter the high-end cosmetics market. The acquisition of Debenhams would also provide access to its Beauty Club loyalty members. It is speculated that the number of Debenhams stores could be significantly reduced from the initially proposed 60 out of 124.

Reports suggest that Ashley has visited the Debenhams Peterborough warehouse, indicating his seriousness in making a deal. Other potential bidders have been excluded from negotiations, as Ashley aims to finalize a deal quickly.

The potential buyouts of Debenhams and Arcadia, or its individual brands, may result in job losses. However, failing to reach a deal would have dire consequences for the 25,000 employees of these businesses. Suppliers are also under pressure, with Arcadia supplier Lloyd Shoe Co already filing for administration. Deloitte, the administrator handling Arcadia, has reportedly demanded significant discounts for stock destined for stores.

The outcome of these negotiations will have significant implications for the future of Debenhams, Arcadia, and the retail landscape as a whole. ABG’s entry into the race adds an interesting dynamic, given its financial strength and commitment to acquiring notable labels.

Useful links:
BBC News: Authentic Brands Group expresses interest in Debenhams and Topshop
The Guardian: Backer of multiple retail chains may bid for Debenhams and Arcadia