Missguided was once a star of the online fashion world. However, although shoppers are increasingly gravitating online during the pandemic, the retailer’s light has dimmed significantly in recent years.
Late last year, the retailer requested emergency funding to keep the lights on and was forced to sell a 50% stake in the company to Alteri, an investor specializing in distressed businesses.
A few months later, the retailer brought in Teneo advisers to explore options for the retailer as founder Nitin Passi steps down as chief executive.
Missguided may be down but it’s not over as a queue of retailers line up to take over the fast fashion specialist, with JD Sports, Asos, Shein, Frasers Group and Asda all being supposed to think about offers for the company.
But what went wrong at Missguided and can it find a new direction?
Missguided has had its ups and downs in recent years. In fact, in its year to March 2018, it recorded an EBITDA loss of £26.5m before exceptional items.
Passi admitted at the time that he wasn’t sure if he had enough money to run the business or pay the employees.
He told Drapers: “All of our wounds were self-inflicted. For me, it was a very humbling experience. He blames the “poor control” of a situation that led things to spiral.
“I put a big team around me, I put a lot of expense into the business. We consumed too much money too quickly and we didn’t have the right people in the right positions.
“Missguided made some big missteps,” a fashion executive told Retail Gazette. “Opening stores was a big mistake. I know some of its competitors online were shocked that it did.
Passi has taken steps to get him back on track. It closed the two flagship stores it had opened, cut marketing expenses, laid off more than 15% of its staff and shortened product delivery times to better compete with fast fashion rivals.
The initiatives seemed to have worked. In its last financial year to March 2020, sales increased by 8% to £202m, although profits fell slightly. It achieved an EBITDA of £2.1m and an operating loss of £5.2m, compared to £3.6m the previous year.
Then the pandemic hit. Although Missguided sales have soared, rising 50% to £300m in the year to March 2021, costs have also risen.
Financial results have yet to be filed for the year, so it’s unclear what the true impact on Missguided’s bottom line was, but it had warned that EBITDA would be “below expectations” in due to increased distribution costs.
Passi said air and sea freight rates have been “astronomical” and up to 10 times higher than they usually are.
These costs have continued to skyrocket.
The fashion boss said Missguided would have been particularly hard hit as it is not as operationally efficient as rivals such as Boohoo.
“Missguided aimed to build the brand with big advertising campaigns and collaborations, however, Boohoo really focused on operations. Boohoo is a really efficient machine, much more so than Missguided,” he says.
However, skyrocketing shipping costs even impacted Boohoo. Just this week, the retail group revealed that its annual profits had fallen 94% on a pre-tax basis due to “significantly increased logistics costs”. Pre-tax profits plunged to £7.8m from £124.7m the previous year.
Meanwhile, Asos suffered operating losses in the first half to February 28 due to a supply chain disruption, against a profit of £109million the previous year.
Missguided’s balance sheet was nowhere near as strong as those two online Goliaths that can absorb losses.
That’s why he turned to Alteri in December to give him liquidity to trade through the supply chain disruption.
Fall behind Boohoo
However, Missguided’s woes run deeper than just the supply chain crisis. In recent years it has paled in comparison to Manchester rival Boohoo and stable mate Pretty Little Thing.
Catherine Shuttleworth, chief executive and founder of Savvy Marketing, attributes Missguided’s downfall to a lack of spending on marketing, which was one of the areas Passi admitted to cutting back to get the company back on track.
“Missguided was overspent,” she says. “His competitors spent more on marketing. It does not appear as innovative as its rivals.
GlobalData analyst Darcey Jupp agrees and adds that Missguided’s lack of high profile celebrity collaborations has contributed to the brand losing the attention of younger shoppers in the UK fast fashion market.
“Missguided has found itself in troubled waters lately, losing its competitiveness against its main rivals: PrettyLittleThing and Boohoo,” she told Retail Gazette.
“While many UK pureplays have struggled to maintain their pandemic momentum in 2021 with the return of in-person shopping, Missguided appears to have slipped further than most.”
Jup is right. The reopening of stores has of course stemmed the growth that e-tailers have experienced during the confinement. So, as shipping costs increased, growth would have leveled off at Missguided.
Shuttleworth also points out that due to the rising cost of living, consumers are rethinking how they spend their money. She says people have been going out less since the pandemic hit, even since restrictions were lifted, so when they tend to buy new going out clothes, they spend more. “When they go out, they do it big,” she says.
This might have hampered Missguided’s growth of late, but Shuttleworth says it could also be an opportunity for the fast fashion business in the future.
What measures have been taken?
Since Alteri bought the retailer in December, it has sought to improve Missguided’s operations.
The company said it had made “good operational progress in recent months”. He focused on a number of areas, solving inventory issues, streamlining warehouse operations and reducing head office costs.
Layoffs have been made. He had warned that 140 jobs were at risk earlier this year, but following consultation and measures such as redeployment and voluntary redundancies, that number has been reduced to just over 60.
Missguided Chairman Ian Gray said: “Missguided has made substantial operational progress since receiving new investment at the end of 2021, putting us on a stronger footing in a very short time and I want to thank everyone for their hard work.
“This work means we are now able to accelerate plans to explore strategic options for the business.”
What future for Missguided?
A host of retailers, including JD Sports, Frasers, Asda, Asos and Shein, appear to be bidding for Missguided, along with private equity firms.
Catherine Erdly, founder of consultancy The Resilient Retail Club, says Missguided needs a buyer who can offer her the opportunity for a fresh start, “preferably someone with deep pockets”.
But what needs to be done to get Missguided back on track?
Operational progress must continue to help it meet the current distribution challenge.
However, fundamentally, Shuttleworth thinks Missguided needs to figure out exactly what the USP is and how it’s going to stand out in the crowded fast fashion market. “What Missguided will need is a clear identity and something that gives customers a reason to come to them instead of Asos, Boohoo or Shein,” she says.
She also thinks she needs to invest in marketing to get attention in this competitive market.
Deep pockets may indeed be needed to make this former e-commerce star shine again.
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