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SA retail titan Christo Wiese buys value in UK high street

South African retail titan Christo Wiese has set his sights once more on the UK’s fast-fashion value segment. The R14.55bn acquisition of New Look, by his investment vehicle Brait, comes ahead of a 50-store launch of Pep&Co, a discount fashion chain targeting mothers and children, which Mr Wiese and former Asda CEO Andy Bond are embarking on in July.

In the UK, high street retailers including Debenhams, H&M and John Lewis Next have relied heavily on discounting over the past year as hamstrung consumers face pressures not unlike their counterparts in SA.

The value end of fashion retailing in both markets has, however, proved more resilient.

Brait, which owns 19% of UK budget chain Iceland and 87% of Snowflake cake flour maker Premier Group, has been eyeing buyouts since it shed Pepkor for R26.4bn to Steinhoff last year.

Cash-flush Brait last month agreed to buy Sir Richard Branson’s 80% stake in fitness chain Virgin Active for R12bn.

Wayne McCurrie, portfolio manager at Momentum, said the investment firm was spending its big bucks.

"They had the money sitting around — one just hopes they apply it correctly and wisely. They don’t say what price-earnings ratio they’re paying; information is quite limited. Ultimately, though, it’s good to have non-South African assets and income to give you some diversification and a bit of rand protection," he said.

Founded in 1969, New Look has more than 800 stores around the world, across Europe, China, North Africa, the Middle East and Asia.

In February, New Look said a warm autumn had hurt sales in its third quarter — revenue fell 1.6% to £399.9m for the 13 weeks to December 27. Pretax profit for the quarter rose 28% to £35.2m.

Brait will take a 90% stake in New Look largely from two private equity firms, Permira Holdings and Apax Partners, which bought the chain in 2004 and had plans to list the fashion group. New Look founder Tom Singh will remain a shareholder and is expected to retain his interest in the group.

Brait CEO John Gnodde said New Look was an attractive investment. "It’s a market-leading brand, with a strong track record of double-digit ebitda growth, solid cash-flow conversion, international reach, and the potential to grow rapidly in a number of geographic markets, including China. We have been highly impressed with the management team," he said. New Look plans to open as many as 50 stores in China by next April.

The chain’s average time from product design to store delivery is about 13 weeks, with some key high-fashion items delivered in less than two weeks.

Honor Westnedge, lead analyst at Verdict Research in London, said following a new management team over the last two years, New Look now had a clear strategy and continued to invest in its product proposition, in-store environment and multichannel services, which would support growth.

Verdict forecast New Look to a 3.7% share of the UK womenswear market this year, rising 0.1 of a percentage point on 2014 and ranking it as the fourth-largest player.

"Investment in smaller product areas such as menswear and leisurewear combined with international expansion opportunities will ensure growth at a group level continues as market share gains in its core UK womenswear market become harder to achieve," Ms Westnedge said.

Mr Wiese, who owns 35% of Brait, was earlier linked with a takeover of UK retailer BHS, but Retail Acquisitions Limited bought the chain in March.

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