Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
Retail takeovers: when is a brand worth salvaging?
For all the troubles it has endured in recent years Ted Baker (TED) is still seen as a brand with some value based on the news US private equity firm Sycamore is weighting up a potential takeover of the clothing retailer.
Ted Baker, once something of a stock market darling, has struggled in recent times. The fall from grace started with accusations of inappropriate behaviour levelled at founder Ray Kelvin, then a series of profit warnings followed, a short-lived CEO and accounting errors only compounding things.
Margins suffered as the company responded to a competitive market with price cuts, not exactly a testament to the strength of the company’s brand.
Nonetheless, the Sycamore bid interest has helped to breathe life into a depressed share price which is now up more than 40% since 15 March.
Shore Capital analyst Eleonora Dani commented: ‘While undoubtedly all the attention will be on Ted shares, we see the potential for read-across to other UK lifestyle brands, Superdry (SDRY) and Joules (JOUL:AIM).’
Dani notes that shares in both have fallen sharply despite retaining ‘a varying degree of brand equity’.
‘We would not be surprised if private equity firms targeted these brands, now in deep value territory.’
However, history is littered with examples with consumer brands which have disappeared without a trace despite once enjoying widespread popularity.
Think of Woolworths, bookstore Borders and Toys R Us in the past 20 years. These chains mainly sold third party products, so perhaps a better comparison for Ted Baker is American Apparel.
There are some eerie echoes of the Ted Baker story. American Apparel, known for offering brightly coloured, US-manufactured clothing, twice filed for bankruptcy in the wake of sexual harassment allegations against its founder Dov Charney, who left as CEO in 2014.
Bought out of Chapter 11 by Canadian retailer Gildan Activewear for $88 million in 2017, in its current online-only guise it is a shadow of the 281-site and $634 million business it once was.
Perhaps that is where the future lies for the likes of Ted Baker, as well as Superdry and posh welly seller Joules.
At one time Superdry’s faux Japanese stylings felt quite ubiquitous but tastes change and perhaps it no longer warrants a bricks and mortar presence, with its more devoted fans still able to buy its products over the internet.
Certainly, from a private equity perspective you could see the logic of getting rid of the costs associated with maintaining physical stores and just moving to an online-only model.
The great thing for individual investors looking at this space is that it is relatively easy to make your own judgement about consumer brands and whether they have staying power.
You may not always be right, but you can at least interact with the products and get your own ‘literal’ feel for how a lifestyle brand compares with the competition.