In August 2019, Boohoo acquired two well-known fashion brands: Karen Millen and Coast. To be more accurate, it purchased the online businesses of both brands. It paid over £18 million for the business and the intellectual property rights of Karen Millen Fashions and Karen Millen Retail. The Coast brand was part of the original Karen Millen portfolio.

Karen Millen was once seen as one of the strongest womenswear fashion retailers, positioned in the premium segment and targeting professional, trend-conscious and seeking “occasion” fashion (for big events in their lives such as job interviews, weddings and so on).

We have discussed the fortunes of Boohoo in a couple of previous blogs. This retailer has garnered much commendation for its performance in the fickle world of fashion as a pure-play online operator.

I thought it might be interesting to explore the rationale for this acquisition as it brings us firmly into play, retail issues such as positioning, merchandise and pricing strategy.

Some commentators have expressed surprise at the acquisition of these brands. They may have a point.

Boohoo has carved out a strong differentiating position at the lower end of the spectrum. It has aggressively competed on offering a wide range of fashionable merchandise at low prices.

The key differentiating factor lies in its overall business agility. This is a term that is used frequently when discussing the overall supply chain of a business. We discuss this in chapter three of the textbook. Many commentators argue that successful supply chains are ones that build on the principle of speed and flexibility in terms of managing the process in the supply chain and in responding to the needs of its target market.

The 16-25 segment represents its core business.

By contrast, the Karen Millen and Coast brands, as noted earlier, focus on the premium sector. With the acquisition of these brands, Boohoo expands its own brand portfolio, which also includes PrettyLittleThing, Nasty Gal and MissPap.

Why would Boohoo embrace the premium segment when its differentiating factor is built exclusively around the opposite end of the spectrum? It challenges conventional marketing thinking; arguing that a company should stick to what it is good at and avoid entering segments where it has no DNA or specific expertise.

Karen Millen and Coast generated much of their revenue from its thirty-two stores and one hundred and seventy five concessions in the UK. It has established a footprint in around forty-five countries through a combination of stores, concessions and franchises.

Its proposition statement revolved around the mantra of creating products that are “style-led, glamorous and a flattering fit”. Its demographic consists mainly of 30 – 40 year-old women. They perceive their typical customer as internationally minded, well travelled  and holding down a position in a challenging professional position.

The physical presence generates roughly eighty four per cent of its revenue from the “bricks and mortar” dimension with the remaining sixteen per cent from its online channel. This is in sharp contrast to BooHoo and its pure-play focus.

Arguably, this is comparable to a situation where Ryanair (an out-and-out low cost airline operator) would decide to compete in the long-haul business by acquiring British Airlines. While not guaranteed to fail, many would see the lack of knowledge and expertise in this sector as becoming a major inhibitor to potential success.

Is it accurate to damn the Boohoo acquisition with such negativity?

Let us consider a counter-argument.

By acquiring Karen Millen and Coast, Boohoo spreads its risk across a wider portfolio of retail brands. By generating a presence in the premium sector, it eliminates the fact that it has “committed all of its egg in one basket”. This sector also provides much stronger opportunities to create higher profit margins: the typical female in this segment considers more variables than simply price when purchasing items.

Boohoo will only retain the physical stores for a short period going forward. It plans to operate the Karen Millen and Coast brands from their online sites as soon as is practical. This is likely to be contentious. The previous owner of Karen Millen has long argued that in key European markets such as Germany, France and Spain it necessitates some physical stores. The supports the argument that women, when making expensive “Occasion Wear” purchases want the comfort of trying on the items in a store. It can also be counter-argued that as they become more familiar with the brand, they are more willing to purchase because they display a higher degree of trust and confidence, mainly based on prior experiences.

We should remember that Karen Millen struggled to generate a profit in the past few years. In 2019, it incurred an operating loss of £1.4 million based on a turnover of £161.9 million. This was an improvement on previous years, where the losses were higher.

On this basis, it is hard to argue against the perception that Karen Millen, as a fashion brand has struggled for relevance in the market.

In my view, it will require senior management in Boohoo to get certain things right in order to make money from these acquired brands.

Firstly, it cannot compromise on the challenge of producing “style-led” merchandise for the core customers who believe in the value of the Karen Millen and Coast brands. It cannot afford to “cut corners” when dealing with the supply base. This arguably, goes against one of its original strengths, driving “hard bargains” and discounts from its own range of suppliers.

Secondly, it must continue to invest in the design of product that meets the “premium” segment.

Thirdly, it must work carefully on content and narratives for the social media platform of Karen Millen and Coast. On a positive note, this was a strong feature of Karen Millen’s communication strategy. It focused on paid media on social media channels such as Twitter and Facebook. It eliminated any form of investment in print advertising and invested in influencer marketing, running a number of themes around the concept of female empowerment.

It is debatable if they can persuade Boohoo’s core customers (females between 16 and 25) to trade up to the choices on offer at Karen Millen and Coast. This will not occur in the short-term.

It must not alter the existing pricing strategies for Karen Millen and Coast merchandise either. To do so would challenge the credibility and authenticity of the brand. It would also bring these brands into direct competition with mid-market brands.

The challenges facing Boohoo are high. Let us see how it pans out over the coming twelve months.