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Key Messages

• Online poster child Missguided tumbles into administration.
• Subsequently acquired by Mike Ashley鈥檚 Frasers Group.
• Root causes transcend / pre-date current market pressures.
• Unable to translate huge sales into consistent profit.
• Proof that online is not an infallible, omnipotent force.
• Poignant warning to other tech / digital start-ups.
• Not 鈥榖eginning of the end鈥� for fast-fashion.
• Underlines the importance of adhering to 鈥榬etail fundamentals鈥�.
• Deal bucks trend of pure-plays acquiring store-based operators.
• Missguided more likely to survive and thrive under new ownership.

Sexy 鈥� tick. Fast-fashion 鈥� tick. On-trend - tick. Strong brand 鈥� tick. Online pure-play 鈥� tick. Digital marketer extraordinaire 鈥� tick. Celeb endorsement 鈥� tick. Championed by influencers 鈥� tick. Affordable price point 鈥� tick. Massive customer engagement 鈥� tick. Industry disruptor 鈥� tick.

Lots of ticks in lots of important boxes. But not enough to keep Missguided from failing. The administration of what was supposed to be a trailblazing brand and business has left many scratching their heads as to what went wrong.

The backstory

Missguided was established in 2009 by entrepreneur Nitin Passi with the help of a £50,000 loan. It embarked upon a trajectory of rapid growth in the UK and subsequently expanded into the US, Australia, France and Germany.

2015 was a momentous year in its evolution. The business launched concessions in US department store Nordstrom and three implants soon followed in Selfridges stores in Manchester, Trafford Centre and Birmingham. Nicole Scherzinger was signed up as a celebrity endorser and annual sales surpassed the £100m barrier for the first time.

The following year, it opened its first two standalone stores at Westfield Stratford City and Bluewater. The two bricks & mortar stores were widely celebrated as a triumph in their own right, as well breaking new ground in that they marked the transition of a pure-play operator into the multi-channel arena. A path that apparently all pure-play operators were expected to follow. The future of retailing, if you will.

But the rot soon set in 鈥� if it wasn鈥檛 there already. The all-singing all-dancing Stratford City store closed in 2019, less than three years after opening. Its counterpart in Bluewater suffered a similar fate. The rationale was that the physical stores weren鈥檛 sufficiently profitable. Slightly ironic as the online business wasn鈥檛 exactly massively profitable in itself.

A series of strategic reviews followed but question marks remained. The business was saved from collapse just before Christmas last year, when Alteri Investors acquired a 50% stake and took on the company鈥檚 debt. Backed by private equity firm Apollo, Alteri have the somewhat dubious billing as 鈥渢urnaround specialists鈥� and while they did give the brand much-needed liquidity, clearly this was not going to be the end of the saga.

And so it proved. Founder and chief executive Nitin Passi stepped down from his role in April and the business put itself up for sale. In May, it emerged Missguided was again on the brink of collapse after being issued with a winding up petition by its suppliers, who reportedly had not been paid for months. On 31 May, it officially went into administration. Teneo Financial Advisory were appointed to handle the process and seek a rescue deal.

Fellow online fast-fashion pure-play Boohoo was widely regarded as the front-runner in acquiring the business, with the likes of JD and Asos also touted as being in the mix. In the event, Mike Ashley鈥檚 Frasers Group emerged victorious, buying Missguided out of administration for £20m. Missguided is now being operated by administrators 鈥渦nder a transitional agreement鈥� for around eight weeks, before becoming a part of the Ashley empire, alongside other businesses, such as Sports Direct, House of Fraser, Studio, Flannels and Jack Wills.

So, Missguided has not folded completely and will live on under new ownership. But where did it all go wrong for such a trailblazing brand?

Pinchpoints 鈥� red herrings

In this instance, it is actually easier to discount causes than it is to pinpoint actual tipping points.

Retail failures, be they CVAs, administrations or outright liquidations, have been an all-too-frequent occurrence in recent years. The root causes in each case vary, but are seldom explored. Wise-after-the-event retail analysts tend to fall back on a textbook of lazy reasons 鈥� the failed business was an old school stick in the mud that had lost out to far more nimble upstarts, a store-based operator encumbered by massive overheads, completely out-maneuvered by lower cost online pure-play competition.

Absolutely none the above applies to Missguided. It was a nimble upstart, a key player in the supposedly bullet proof online channel. A disruptor to the established status quo. The sort of player that was apparently itself driving all the old guard out of business. Without their textbook of lazy reasons, the wise-after-the event analysts have been particularly quiet in the wake of Missguided鈥檚 demise.

Ludicrously, others have blamed the business鈥� brief foray into store-based retailing as the reason for its failure. A costly venture that was ultimately discontinued, but surely not destabilizing enough to completely undermine a business turning over £200m?

Nor do any of the latter-day retail excuses wash in any way. Neither the 鈥榗ost of living crisis鈥� nor supply chain squeezes prompted Missguided鈥檚 downfall, other than to finally tip it over the edge. Missguided鈥檚 issues were deep-seated and even predated COVID-19. Recent/current challenges were merely straws that were placed upon a camel鈥檚 back that was well and truly broken a long time ago 鈥� if it were ever properly formed in the first place.

End of the line for fast fashion, as some have suggested? A surge of conscience amongst younger consumers in rebellion against the perceived evils of fast-fashion? I highly doubt it and the ongoing strong performance of others in this space, notably Zara, H&M and Primark would also appear to suggest otherwise.

None of the above. Minor factors or side issues maybe, rather than the root cause.

Making money

The root cause is far, far more simple: the business wasn鈥檛 financially viable. It didn鈥檛 make enough money. That I am having to spell that out speaks volumes as to how much retailing has changed over the years and how the whole landscape has changed in a multi-channel retail world. Making money doesn鈥檛 seem to matter any more. But ultimately it always will.

Top line sales were never a problem for Missguided 鈥� it has always sold huge volumes of stock. To go from zero to being a £200m+ t/o business within a decade is a phenomenal growth trajectory. But huge sales failed to filter through to the bottom line. In its 2018 financial year, the business racked up an operating loss of £45m. Although this reduced to £3.6m the following year, it remained firmly in the red. In the last set of accounts filed at Companies House (FY 2020), it reported losses of £5.2m and £8.3m at operating and pre-tax level respectively.

I haven鈥檛 been through the accounts for each and every year, but it seems fair to assume that Missguided has never been profitable. In the early, start-up years, this would be expected. But not when it reached a certain scale. And this cannot continue indefinitely, unless supported by a very forgiving stock market with huge faith in tech players or continual cash injection from external sources, confident of future profitability. Missguided did not have the luxury of the former and just burnt through the latter.

Why it was unable to translate top-line growth into profit is far from transparent and not discernible to the outside world. Some have pointed to supply chain issues, but it is probably safer to fall back on the generics that the operational infrastructure was not there and the business model was not viable. And this should serve as a warning to many other digital start-ups, not just in the retail space.

Online pureplays 鈥� not immune to retail pressures

The rise and fall of Missguided shines a light on so many facets of the retail market. Above all else, it challenges the ridiculous notion that online is a panacea, completely incubated from wider industry pressures. Online is merely a channel of distribution, it is not an infallible, omnipotent force that many purport it to be.

By extension, online pure-players, disruptors or not, still have to adhere to 鈥榬etail fundamentals鈥�. Vision, brand, product, price point, operational infrastructure, strong leadership to name but six. Their cost base may be different from physical/multi-channel operators (e.g. no store overheads, but significantly higher advertising and marketing costs) but these 鈥榬etail fundamentals鈥� are constants 鈥� and not readily understood by so-called 鈥渋nfluencers鈥� who tend to have a very tenuous grasp of the hard economics of retailing.

How many other Missguideds are there out there? Thousands. The fact that Missguided itself was started with a loan of just £50k shows how low the barriers to entry are. High growth digital start-ups with a seemingly strong brand and a great product, but don鈥檛 make any money are plentiful. As I鈥檝e already stated, in the early years this is to be expected, but cannot continue indefinitely. Many digital start-ups, retail or otherwise, will successfully make the transition to become sustainable, profitable businesses. But many more won鈥檛 and will ultimately fall by the wayside.

Missguided itself will live on under Frasers鈥� ownership. Something of a trend reversal, a multi-channel operator acquiring a pure-play, rather than the other way round (Asos/Arcadia, Boohoo/Debenhams). Mike Ashley doesn鈥檛 always receive the best press (to put it mildly), but he could scarcely be accused of losing sight of the aforementioned 鈥榝undamentals of retail鈥�. In that regard, Missguided is far more likely to achieve the profitable grounding it needs under its new owners.

Finally, a tick in the most important box of all 鈥� being financially viable.