Blog: Leonie BarrieThe week that was...Icelandic fall-out continues

Leonie Barrie | 20 October 2008

The fall-out from Iceland's banking crisis continues to reverberate across the UK high street, with a number of investors, including retail mogul Sir Philip Green, now lining up to seize the debt held by Icelandic investor Baugur Group in a number of high profile fashion chains - such as Whistles, Jane Norman, Oasis, Warehouse and Karen Millen.

Equity groups TPG, Permira and Alchemy are believed to be preparing buyout deals. And it’s not inconceivable to think the chains’ own management will be trying to mount their own bids as well – if they can get the finance together.

A price war between investors for all or parts of the Baugur empire is an exciting – and until about a week ago in the current financial climate, unbelievable – prospect. But with the UK facing its very own economic slowdown, such acquisitions, although good value, hold a high element of risk right now.

The collapse of Iceland's major banks has also been a source of concern for investors in troubled retailer JJB Sports, which had concluded negotiations on a GBP20m bridging facility from Kaupthing before it was nationalised. The loan reduces fears about the cash-strapped sportswear firm’s ability to continue as a going concern.

JJB has also received an offer to buy its LifeStyle division – rumoured to be from rival JD Sports –including the recently acquired Qube and Original Shoe Company chains. And in another attempt to turn around its business, the retailer has named David Jones, the former chief executive and executive chairman of clothing retailer Next Plc, as its new deputy chairman.

Meanwhile in the US, clothing retailer Gap Inc told investors it would focus on improving results at its core brands, as well as its online and international businesses, over the next 12 months. It also reaffirmed its financial guidance for the year, and said it has “the flexibility to respond” to the current economic environment. Plans include a new strategy focusing on fun, family and value at Old Navy, and expansion at Banana Republic.

There can be few retailers who don’t expect the holiday period to be extremely challenging – and the latest survey suggests promotion-hungry shoppers will increase their spending this Christmas by the smallest amount in at least six years. The National Retail Federation’s forecast follows a 0.7% month-on-month drop in US retail sales in September.

 


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