A deal is reportedly close to being signed that will see Apparel Group acquire the beleaguered fashion retailer Lisa Ho. The privately owned Apparel Group currently operates the Willow, Saba and Sportscraft clothing brands and is rumoured to have edged out department store chain Myer Holdings (ASX: MYR) in negotiations.
Lisa Ho went in to voluntary administration last month after having recorded a loss of $2.4 million in the last financial year. Since then, six of the 10 Lisa Ho stores have been closed down, as well as one clearance store. The company currently owes almost $11 million to its creditors.
A post-mortem following the collapse has revealed that the retailer's troubles began back in 2009. The company's decline appears to be due to a combination of poor operating decisions, increased competition and difficult market conditions. In the years following the global financial crisis, fashion retailers have faced stagnant demand growth.
At the same time, competition has intensified due to both online stores and international fashion brands scaling up their domestic operations. Questions have been raised over accounting irregularities in the company's books. These accounting issues appear to have contributed to the company's difficulty in securing the private equity financing that it desperately needed in order to prevent collapse.
There has been speculation that several different groups could be interested in acquiring Lisa Ho's iconic brand. Administrator Barry Taylor has confirmed that there have been "Ongoing negotiations with a number of parties". Listed fashion retailer Premier Investments (ASX: PMV) is among those considered a potential suitor due to Premier's desire to expand its in-house brand offering. David Jones (ASX: DJS), which has an existing distribution relationship with Lisa Ho, has also been considered as a potential acquirer.
Myer Holdings has been rumoured to be one of the strongest contenders. The department store chain has been encouraged by the success of previous acquisitions such as Trent Nathan and Wayne Cooper, and is said to be one of four potential acquirers that are undertaking due diligence. But the company has remained tight lipped on the matter, with a spokesman saying "We don't comment on corporate transactions, one way or another".
However the latest reports are that Apparel Group is now the front runner, after having edged out Myer. Apparel Group is a privately owned fashion retailer that has been operating in Australia for over 60 years and owns the Saba and Sportscraft brands. Its most recent acquisition, fashion brand Willow, was added to its stable in 2011. It is unclear at this stage what the terms of the offer will be. Apparel Group could purchase just the brand and related intellectual property, or take over the remaining stores as well.
The wild card in this story is the company's founder herself. Ms Ho, who has a deep passion for fashion design and began sewing at the age of four, helped build Lisa Ho into one of Australia's most recognised fashion labels. Reports are that she has been working to secure funding to buy back the business that she began over 30 years ago. But it may be too late, with Apparel Group close to a deal and rumours that Ms Ho has struggled to gain the support of outside investors.
Foolish takeaway
It appears that the privately owned Apparel Group has edged out Myer Holdings to be the front runner to acquire the collapsed fashion label Lisa Ho. Ms Ho herself remains the wild card in this mix as she is reportedly working to secure funding to buy back the company that she founded. Fashion retailers face flat consumer demand coupled with intense competition from online retailers and international brands. If Lisa Ho is purchased by another player, then this is likely not the last consolidation that we will see in the industry.
Has the collapse of Lisa Ho left you searching for the stability of a solid dividend payer? Get "3 Stocks for the Great Dividend Boom" in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!
More reading
Motley Fool contributor Matt Joass does not own shares in any of the companies mentioned in this article.
