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Marks & Spencer Target of Takeover Speculation

Could Marks & Spencer (M&S) be the target of a possible takeover bid?

Word surfaced over the weekend that U.S. private equity firm Apollo Global Management has been taking a keen interest in the British retailer.

Private equity firms have a lot of dry powder that’s waiting to be put to use. With the pandemic impacting the fortunes of many retailers, the retail sector has been the focus of much attention. And retail is an easy target because most retailers saw their stock prices drop in 2020, allowing potential acquirers to buy what they deem to be undervalued companies at bargain-basement prices.

Companies on both sides of the pond have seen increased interest from both strategic and financial buyers. Strategic deals in the U.K. include Asos acquiring the Topshop and Topman brands from bankrupt Arcadia and Boohoo buying the bankrupt Debenhams brand. Financial buyers for fashion retailers for the most part have been on the sidelines waiting for lower prices, although they’ve been busy doing their homework on potential targets. They’re also said to be looking at Selfridges, which put itself up for sale in July for over 4 billion pounds ($5.7 billion). Other possible bidders include QIA, Qatar’s sovereign wealth fund and the owner of British retailer Harrods and French retailer Printemps, Hong Kong department store operator The Lane Crawford Joyce Group, and Thai-based conglomerate Central Group, controlled by the Chirathivat family. Central also owns Italian department store Rinascente, where Vittorio Radice is vice chairman of La Rinascente S.p.A. Before joining Rinascente, Radice ran Selfridges from 1996 through 2003.

And right now, it appears that M&S is a potential target of Apollo, according to a report Sunday by The Sunday Times. The report said that “city sources” indicated that Apollo had considered M&S a bargain, and it believed the equity market had undervalued the contribution from its Ocado venture.

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The U.K. retailer had been struggling with store sales in apparel and home. And then in August 2019, the British retailer completed a game-changer when it raised 600 million pounds ($797.1 million) for a 50 percent stake in Ocado Retail, a joint venture with Ocado Group plc. that helped M&S become a home shopping service offering  food deliveries.

That deal turned out to have been a prescient move for M&S in light of the Covid outbreak driving consumers to omnichannel options. The move to expand further into grocery and then grow the online base mirrors the playbook of Walmart and Target, both of which have augmented their penetration in grocery, as well as same-day and other forms of contactless delivery.

It wasn’t clear if Apollo still has an interest in M&S. And the reason is because the M&S share price has been on the rise. For example, on Nov. 8, 2018, shares of M&S closed at a high of 296.48 pence ($3.97). Two year later, the shares fell as low as 86.44 pence ($1.16) on Oct. 30, 2020, a significant decline related to the pandemic. A year later, shares of M&S are recovering. Investors on Monday traded shares of M&S as if it were an acquisition target. They sent shares up nearly 2 percent to close Monday’s trading session on the London Stock Exchange at 245.50 pence ($3.29). Nearly 13.8 million shares traded hands versus a three-month average volume of 8.7 million.

And M&S’ prospects are better now than a year ago.

The British retailer earlier this month raised its full-year outlook after reporting that sales fell just 1.0 percent for the first half versus the same comparable 2019 period. In other moves to improve the shopper experience, M&S streamlined its digital click-and-collect program and it has also revamped some of its apparel offerings. In one example, M&S grew sales of its “hero” women’s denim category by 56 percent per option over 2019 figures, even though it reduced the assortment by 29 percent.

The improving finances could see the British retailer make a move to acquire men’s brand Gieves & Hawkes, a brand owned by Trinity Group, which is in the process of liquidating. Earlier this year, M&S acquired Jaeger in January after the label’s previous parent, Edinburgh Woolen Mill Group, collapsed into administration.

Executives at both M&S and Apollo could not be reached for comment by press time.

Meanwhile, Springboard on Monday said footfall to U.K. retail destinations rose by 4.1 percent last week from the prior week, suggesting that shoppers are gearing up for the holiday shopping season.

“The beginning of the Christmas trading period began in earnest in many retail destinations last week, and it had an increasingly positive impact on shopper activity, ahead of Black Friday,” Diane Wehrle, insights director for the foot traffic data specialist, said. “High streets led the charge—undoubtedly supported by Christmas lights being switched on in town centres across the UK—with an uplift in footfall that was virtually double that in shopping centres.”

M&S launches fashion rentals

Meanwhile, the retailer recently made its foray into rentals and is partnering with a startup it helped fund.

The department store’s customers can rent an assortment of women’s wear looks through Hirestreet. Founded in 2018, the tech upstart was funded by the Founders Factory Joint Venture accelerator program—a collaborative effort between M&S and Zoa Group, Hirestreet’s owner.

Marks & Spencer clothing is now rentable through the Hirestreet platform.
Marks & Spencer clothing is now rentable through the Hirestreet platform. Marks & Spencer

The program, which was designed to help the retailer identify emerging businesses as well as changes in industry trends, gives M&S the opportunity to invest in innovative companies new to the fashion sector. Recently, the retailer also announced a cornerstone investment in True Global’s seed stage fund for consumer-facing retail technology companies.

According to GlobalData insights, the apparel rental market in the U.K. is projected to reach 2.3 billion pounds (more than $3 billion) by 2029, up from just 400 million pounds (about $537 million) in 2019. The M&S and Hirestreet venture enables the retailer to conduct its first trial in what it considers to be an important growth market. Since it was founded three years ago, Hirestreet has grown its business to thousands of items from more than 50 brand partners.

Launching ahead of the holidays, the introductory collection includes 40 womenswear looks from the M&S in-house Autograph range, which showcases premium fabrics like leather and silk. Also for rent are dresses from the retailer’s latest collaborative capsule with Ghost London, a romantic, vintage-inspired line of women’s apparel. The autumn 2021 collection, which also dropped Tuesday, represents the fifth collaboration between Ghost and M&S.

While the items in the collection are priced between 69 pounds (about $93) and 299 pounds (around $400), consumers can rent the items for four days at a time for just 13 pounds (just over $17).

M&S chief operating officer Katie Bickerstaffe called the program “a huge opportunity to learn from the leading start-up in this space, operate in an agile way and better understand what our customers want from rental services.”

“As we grow M&S clothing, we want to be more relevant more often and we know customers are increasingly interested in the circular fashion economy,” she added. Teaming up with Hirestreet will allow the retailer to expose its assortment to new customers. “Our first rental edit doesn’t just showcase the style we have on offer, it also highlights the value and quality of clothing that is made to last.”

The debut edit includes holiday-ready dresses.
The debut edit includes holiday-ready dresses. Marks & Spencer

“M&S is one of the largest clothing retailers in the UK with a reputation for quality and well-made clothes,” Isabella West, Zoa Rental and Hirestreet founder and CEO, said, describing the move into rental as a “hugely positive step forward for the fashion industry.”

“True sustainability does not exist without accessibility,” she added. Rentals don’t just give shoppers temporary access to designer items—they give consumers “alternatives to traditional consumption” while making use of clothing that’s already in circulation, she said.

Consumer insights from the M&S Family Matters Index Report, a study conducted in June that focused on issues important to U.K. families, showed sustainability concerns are actively fueling the growth of the rental market. More than one-third of the survey’s 10,000 respondents said they now consider climate change when purchasing apparel.

The Hirestreet trial follows the release of M&S’ Plan A sustainability program, which aims to reset the retailer’s environmental impact through the adoption of more circular processes that keep goods in use longer. The company aims to achieve net zero emissions by 2040.