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Why Bebe is Scooping Up 47 Buddy’s Home Furnishings Stores

While the Covid-19 pandemic has prodded fashion and apparel retailers to downsize their brick-and-mortar operations, one brand is taking the opposite route to become more of a physical player again.

Bebe Stores, which sells women’s apparel and accessories online and licenses its products in nearly 100 international stores, has purchased 47 Buddy’s Home Furnishings “rent-to-own” franchises from Franchise Group Inc. for $35 million. The agreement also includes a planned development schedule for Bebe to open 20 new Buddy’s franchises across geographies throughout the Southeastern U.S.

“This is a transformational acquisition that will not only be materially accretive to Bebe’s cash flow over time, but also provides a platform for future growth through the development agreement,” said Bebe CEO Manny Mashouf in a statement. “The acquired Buddy’s stores have a strong and consistent record of free cash flow generation across multiple market cycles. This acquisition diversifies Bebe’s profit stream and better utilizes existing net operating loss carryforwards.”

Mashouf, who founded Bebe in 1976, noted that the expanded operational infrastructure being developed for this transaction could potentially support additional acquisitions of “high free cash flow entities,” suggesting that Bebe isn’t done bringing in new properties.

Neither Mashouf nor Brian Kahn, CEO of Franchise Group, gave a clear picture of what sparked Bebe’s interest in the Buddy’s franchises, or how exactly the women’s brand expects to position the stores.

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Bebe exited brick-and-mortar in 2017 with the closure of its then-168 locations as mall-based apparel retailers began to fall out of favor with shoppers. In March 2018, the company opened a lifestyle retail store in Manhattan, marking the company’s only physical location.

The women’s fashion brand has kept a low profile since, operating BB Brand Holdings LLC in a 50/50 joint venture with Bluestar Alliance, the private equity firm that owns, licenses and markets a portfolio of consumer brands including Hurley, Tahari, Brookstone, Kensie, Limited Too, Nanette Lepore and Catherine Malandrino. As part of the joint venture, Bluestar operates Bebe’s current brand management organization. Bebe also has a 50 percent stake in the Brookstone brand, which the companies jointly acquired in November 2018.

Bluestar Alliance also unveiled on the same day that it officially won its bid to acquire the Justice brand auctioned by the bankrupt Ascena Retail, with the transaction expected to close before the end of November. Premier Brands Justice, a special purpose acquisition company created by IHL Group, initially offered a $35 million stalking horse bid for the tween brand, but Bluestar upped the ante to $60 million before finally winning with an approximately $90 million bid.

The Buddy’s Home Furnishings locations appear to be outside of the typical Bebe/Bluestar wheelhouse. Buddy’s, which has more than 300 outposts in the U.S., offers home furnishings, furniture, beds, electronics and appliances on a “rent-to-own” basis, allowing shoppers to pay on a weekly basis to use products like televisions, sofas, washers, dryers and laptops. The retailer’s website currently offers five handbags available as rent-to-own, but doesn’t appear to have any apparel or fashion presence beyond these items.

Franchise Group has an eclectic mix of franchised (or “franchisable,” according to the company) businesses under its operations, largely focused on tax preparation and retail. The company’s primary subsidiary is Liberty Tax Service, but also operates Buddy’s Home Furnishings, The Vitamin Shoppe and furniture retailer American Freight. All three retail properties were acquired after July 2019 when Liberty Tax sought to expand its business model.

The company recently signed an agreement to acquire FFO Home, a furniture retailer with 31 stores in Arkansas, Indiana, Kentucky, Missouri and Oklahoma, out of Chapter 11 bankruptcy.

On a combined basis, Franchise Group currently operates more than 4,000 locations predominantly located in the U.S. and Canada that are either company-run or operated pursuant to franchising agreements.