Bargain hunters poised to profit from Baugur’s closing down sale

The collapse of Icelandic retail investor Baugur in the UK has opened up a new bidding war for big-name stores such as Hamleys and House of Fraser, as the winter of economic discontent continues to bite.

The company has decided to withdraw its petition for bankruptcy protection and put its UK assets into administration, leaving its iconic brands to fly solo and await further funding.

Potential bidders include Arcadia Group’s Sir Philip Green and Dragons’ Den judge Theo Paphitis. Or as Baugur founder Jon Asgeir Johannesson puts it: “I expect that these good assets will end up in the hands of British vultures.”

Interest in the “good assets” will certainly be high. Children’s retailer Hamleys has one of the most famous stores in London and has expanded its brand to the Middle East and concessions around the UK.

Strong position

One former marketing director of the toy shop says: “Hamleys has a strong position in the toys market, especially its flagship Regent Street store. The shop is good at what it does because it seeks to charm children using heavy in-store marketing with an aim to make cash.

“The influx of cash is how Hamleys has built its success; without that money, savings will have to be made. This could be a double-edged sword for a buyer – they either invest again in the same way or they slash budgets and try their best to maintain its positioning.”

Dubbed the “Viking raiders” by the press, Baugur’s management has invested in over 20 UK retailers at different times. The group’s first investment was a 20% stake in the Arcadia group. Johannesson and his group eventually sold this to Green for £100m.

According to Baugur, at its peak in 2007, it had stakes in businesses cumulatively employing about 65,000 people. It made about £10bn profit across 3,800 stores.

But as the group continued to invest in stores across Britain, it built up mounting debt with Icelandic banks. The effect of the financial meltdown in Iceland has meant the banks are now asking for that back and creditor Landsbanki has pushed for the UK stores to go into administration – something Johannesson described as “a kick in the balls”.

These stores now face changes in their investor profile. But they insist that they are not in trouble themselves and shoppers are unlikely to see any changes.

Don McCarthy, the chairman of House of Fraser, says: “It is business as usual.” His sentiments were echoed by Mosaic Fashions, in which Baugur has a 49% stake and whose brands include Karen Millen, Principles and Oasis.

Supermarket chain Iceland, department store Debenhams and clothing brand French Connection, in which Baugur has stakes of between 10% and 15%, say their search for new shareholders will have limited effect.

Hamleys, of which Baugur owns 63.7% – its largest stake, also echoed these sentiments. “Hamleys continues to operate successfully as a self-funded standalone business with no shareholder funding requirements for either short-term operations or long-term development,” the toy retailer said in a statement.

Potential buyers are being realistically cautious about declaring interests, especially as the group remains quiet about when it will complete any sale.

An Arcadia spokeswoman claims: “We are looking at lots of different opportunities. Should we be offered a business or businesses, we will look at them in the normal way. We have finance available to buy things.”

Analysts say that the demise of Baugur in the UK should pass by relatively unnoticed by consumers. Fred Burt, managing director of brand consultants Siegel&Gale, adds: “For all Baugur’s financial woes, it has a good sense for retail brands. That is why Baugur’s brands all feel distinct, relevant and deserve their place on the high street.”

Nick Bubb, a retail analyst at Pali International, says that the group has “a real hotch-potch of interests, but the iconic status of House of Fraser and Hamleys in particular means there will be a lot of takers for what’s up for grabs – all down to the strength of these well-known brands.”

Buyout attempts

It remains to be seen how long Baugur can resist buyout attempts, but Jonathan Gabay, founder of branding agency Brand Forensics, warns there will be casualties once deals are signed.

He comments: “Most brands will likely survive either in the hands of existing management through rescue by new investors or being snapped up by opportunistic retail tycoons.

“While the likes of House of Fraser, Principles, Iceland and Hamleys are almost certain to attract a lot of interest, there are concerns over the future of some of the other stores. Mosaic may have trouble and it’s likely jewellery group Aurum will also struggle.”

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