For years, Marks & Spencer struggled to shed its high street image and fully exploit the online marketplace. Now Boohoo (LSE: BOO) is moving in the opposite direction. Might this be exactly what’s needed to supercharge the dipping Boohoo share price?
Boohoo stock did well during the 2020 crash, bouncing back after an initial sharp dip. Investors clearly realised, soon after dumping shares apparently randomly, that the online shopping business isn’t too badly affected by people being locked down at home. If anything, it makes it easier when the delivery arrives.
Boohoo share price down
That effect, however, has been tailing off as 2021 progresses and economies open up. I’m writing on the UK’s so-called ‘Freedom Day’ (when we’re all free to go and catch Covid pretty much wherever we please). And Boohoo’s down 4%. The FTSE 100 itself is down a couple of percent, mind, but Boohoo investors aren’t having a great day.
Anyway, back to Boohoo’s latest strategy move, and it’s all about a deal struck with Alshaya Group, based in Kuwait. Alshaya has the franchise for the Debenhams brand in the Middle East, and it’ll now carry Boohoo brands too. Yes, it will sell those brands online commencing next year. But sales will start in stores in autumn this year.
Boohoo isn’t alone in this, as ASOS is also moving in the same direction. ASOS, which pioneered the online fashion business a few years ahead of Boohoo, has a similar deal with Nordstrom in the US. Nordstrom will carry ASOS brands in its stores, as well as online.
Which is better?
Speaking of ASOS, it’s educational to compare the two. Since Boohoo followed ASOS and came to market in 2014, ASOS shares have declined by about 40%. But the Boohoo share price is up 285%. Perhaps it really is better to avoid the pioneers in a new market and let them iron out the teething problems, then buy into the second generation?
Anyway, what’s my take as an investor (and as a Boohoo shareholder)? Firstly, I take one big lesson. I think it was a mistake to see the market as split between online fashion and in-store shopping. No, it was always a single sector, just with different sales and marketing channels. And whoever ended up successful was always going to be whoever managed all of its channels as seamlessly as possible.
It doesn’t matter whether a company started in bricks and mortar, or whether its early life was exclusively online. The two will, surely, continue on the unification path we’re currently seeing — it’s just the eventual proportions that we really can’t be sure of right now.
Lots of opportunities
That does introduce risks for today’s successful online sellers, as well as opportunities for struggling traditional retailers. Could the opposite of my supercharging suggestion happen instead? Might, for example, M&S shares enter a period of growth while the Boohoo share price falls back to converge? Well, I think both might be good value now.
And on balance, despite the volatility and the difficulty in working out a fair long-term valuation, I remain bullish over Boohoo. I’m not sure about supercharging, but I do think the shares will be ahead in five years.
