Boohoo’s growth spurt could prove scary for fashion rivals

Cantillon: Shoppers and investors united in appreciation for online retailer

 

Boo-who? Among 16-30-year-olds, online-only fashion retailer Boohoo is wildly popular, shifting quilted jackets, bodycon dresses and athleisure gear (sportswear not necessarily worn for sport) to the demographic that has grown up with ecommerce.

The British company is also very much on trend with investors – those same investors that have been running a sceptical eye over the recent performance of Boohoo’s bricks-and-mortar competitors.

Founded just 12 years ago in Manchester, Boohoo is now growing faster than its online peer Asos. On Wednesday, its share price swelled attractively after it reported a 22 per cent rise in pretax profit and an incredible 50 per cent climb in revenues for the six months to the end of August.

This gave Boohoo a market capitalisation that was some 20 times the equity value of the troubled 240-year-old Debenhams, Reuters pointed out. It was not a one-day stock wonder either. Share price gains for Boohoo later in the week put its market value at closer to 23 times that of declining Debenhams.

It’s a stark illustration of the contrasting fortunes of the young upstarts and the more traditional retail companies. Household names in the latter category increasingly find themselves obliged to make costly retreats from unwieldy, out-of-vogue store empires in the face of the online threat. At the same time, they must also invest in the critical distribution infrastructure that will allow them to compete on ecommerce with the relative newbies.

Curiously, the next chief executive of Boohoo is set to be John Lyttle, who is currently chief operating officer of Primark/Penneys, a notable online refusenik.

Primark, owned by Associated British Foods, has chosen to avoid the online model on the basis that delivery costs are neither easily absorbed into its low margins nor comfortably passed onto consumers seeking rock-bottom prices.

But here’s the thing: prices on Boohoo aren’t exactly in a different universe and young consumers have finite cash. Few retailers can afford to mimic Primark’s stance. At some point, Primark may not be able to stick with it either.