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Who Will Rescue Bankrupt Victoria’s Secret UK?

It looks like Victoria’s Secret’s U.K. branch may have found new life after falling into administration in June. The lingerie retailer has been acquired by U.K.-based apparel retailer Next for an undisclosed sum, according to a report from Sky News. Next has reportedly secured an exclusivity agreement until the end of September to finalize a deal.

There’s little clarity around how many of Victoria’s Secret’s 25 stores in the U.K. would remain open after a deal takes place. An outline deal has reportedly been agreed on, but the final scope of the lingerie retailer’s store portfolio will hinge on whether the company’s landlords agree to restructure its lease terms to reflect changing market conditions in the wake of the COVID-19 pandemic. This has been a major issue for apparel retailers across the U.K.—many of which had to defer payments in the months their stores were closed—that are now mired in intense negotiations relating to rent payment plans going ahead.

Sky News first reported that Next and Marks & Spencer were two of the three suitors for Victoria’s Secret, which was going through a “light touch” administration process overseen by Deloitte that allowed the company to continue operating while putting off its debts. But according to the latest report, “dozens of parties” are said to have approached Deloitte about a deal in recent weeks.

Next and Deloitte have not commented and a spokesperson for Victoria’s Secret told Sky News, “We continue to work closely with Deloitte to review a range of possible outcomes.”

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Although U.K. apparel businesses, like most global fashion companies, have performed poorly across the board throughout the pandemic, Next has continued to seek other ways to get out in front of the customer as stores began to reopen.

In May, Next signed new flexible leases to take over the existing beauty halls in five Debenhams stores that are set to permanently close down. The fashion retailer said these will be run as standalone Next premium beauty halls and the new concept will complement its online beauty business.

“This is an exciting opportunity to work with existing and new beauty brand partners to create a new force in beauty retailing—bringing our online business to life through premium store environments in some of the U.K.’s most important retail locations,” Next CEO Simon Wolfson said related to the store expansion.

Next wants to bolster its apparel business by partnering with brands across multiple categories, so the Victoria’s Secret acquisition would make sense there. Next already sells products from a range of major brands including Abercrombie & Fitch, Hugo Boss and Under Armour. Under the Next umbrella, Victoria’s Secret has an opportunity to partner with the retailer’s property team to expand its U.K. presence through new standalone stores and concession arrangements.

The deal would not impact the struggling U.S. Victoria’s Secret business, which is owned by L Brands. The pandemic exacerbated Victoria’s Secret’s inability to fend off declining revenue, forcing the brand to shutter 251 stores for good starting in May. L Brands has wanted to split off Victoria’s Secret to concentrate on its Bath & Body Works chain, but the COVID-19 pandemic ultimately squashed a deal that would have enabled the company to sell a majority stake in Victoria’s Secret to private equity firm Sycamore Partners.

BFC outlines seven-step action plan for government to save U.K. fashion

The struggles among British apparel and fashion retailers like Victoria’s Secret U.K. and High Street brands such as Debenham’s, Laura Ashley and AllSaints among many others has caught attention from the British Fashion Council (BFC), which already has taken significant strides to assist the industry by awarding 50,000 pounds ($60,900) in extra funding to 37 viable businesses to help them continue operating during the COVID-19 pandemic. The council’s 1,000,000 pounds ($1.2 million) emergency fund will reopen for further rounds of applications so that more meaningful support can be given every time it gets 500,000 pounds ($609,000) in donations.

But the BFC has now released new data from Oxford Economics that paints a stark picture for the industry that, in the words of the organization, is “effectively wiping out the above-average growth achieved by the industry in the past ten years.”

The data reports that 240,000 total direct job losses are expected within the U.K. fashion industry in 2020, more than one-fourth of the sector’s 890,000 that were employed in 2019. Including indirect jobs through the supply chain and related to consumer spending, this total rises to 350,000, which equals 1 percent of all U.K. jobs.

Of course, job losses weren’t the only major effect of the COVID-19 pandemic. The level of contribution to GDP is forecasted to drop from 35 billion pounds ($44 billion) in 2019 to 26.2 billion pounds ($33 billion) in 2020, while total revenues are predicted to drop from 118 billion pounds ($148.6 billion) to 88 billion pounds ($110.8 billion).

In order to ensure an industry reset focused on bringing back employment rates and jumpstarting revenue growth, the BFC outlined a series of seven measures calling on the U.K. government for support.

First, the BFC asks for government support to enable lease renegotiations where landlords aren’t acting responsibly and measures such as grants or long-term interest-free loans to offset the costs of leases, as well as rent and rates relief for all businesses.

The council is asking for funding for small to medium size enterprises (SMEs)—whether by grants or interest-free loans—that are not presently eligible for proposed government measures, but were viable pre-COVID-19.

Given the heavy demand for a more sustainable supply chain, the BFC’s next two requests align with this focus, asking for the support of an ecosystem that includes smarter manufacturing, waste management, recycling, upcycling and business models for the British circular fashion economy. The BFC is calling for government legislation and regulation to mitigate the inventory crisis, specifically to stop the cancellation of goods and sell-through guarantees on agreed orders.

And with the pandemic further spotlighting the financial challenges of fashion businesses, BFC believes “it is essential that a fiscal framework is created to help develop more robust businesses that are less reliant on leveraging cash flow within the supply chain.”

Specifically, BFC asks for the COVID-19 Future Fund, which provides government loans to U.K.-based companies ranging from 125,000 pounds to 5 million pounds ($157,300 to $6.29 million), to be made more appealing to private investors by offering Enterprise Investment Scheme (EIS) tax relief. This relief is designed to incentivize private investors to invest into startups and early-stage companies that already come with risk.

Additionally, the BFC is requesting the creation of a new Fashion Investment Fund with industry mentoring support and fiscal incentives for investment in business and inward investment.

The sixth measure may arguably be the biggest one and likely to be a difficult sell to the U.K. government, given its emphasis on eliminating certain taxes. The BFC is asking the government to put a moratorium on payment of duty and tariffs to support the restart of international supply chains and further support liquidity and cash flows in the industry.

The BFC’s final request calls on the government to support the growing opportunity to reshore responsible fashion and textile manufacturing throughout the U.K., particularly when it comes to manufacturing PPE. The council cited Downing Street’s commitment to producing 2 billion pieces of British-made PPE as an example of why the government must invest in British manufacturing and material innovation.