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Aurora Fashions has announced that almost a year after its creation, it will be spinning off Karen Millen. This may boost the brand’s prospects of international success, but will Aurora Fashions succeed in bringing its remaining three chains up to the same level of success?
Aurora Fashions was formed in March 2009 from the ashes of Mosaic Fashions, which collapsed in the wake of the downfall of Icelandic retailing group Baugur. Mosaic’s four strongest brands were rescued from administration by a management buyout (MBO) backed by Mosaic’s chief creditor, Icelandic bank Kaupthing. Without the presence of Mosaic’s weaker banners, Principles and Shoe Studio, the resulting group was more strongly fashion focused.
Initial investments led to an overhaul of the Oasis stores portfolio and the creation of a more premium product offering for the banner. They also saw the enhancement of multichannel operations for all fascias, launching new features such as click and collect in store in 2010 and a 90-minute delivery option.
Also in 2010, Aurora further strengthened its brands by appointing each of them with their own dedicated managing directors for the first time in an effort to generate increased growth. Aurora Fashions is privately owned and does not publish regular results, but it has indicated that in its half year to July 2010 it achieved a 36% increase in underlying earnings.
Whilst Oasis, Warehouse and Coast are now in rude health, Karen Millen has remained the star performer of the group, with its value share of the UK apparel market trebling from 0.1% in 2004 to 0.3% in 2010, according to Euromonitor International’s preliminary estimates. Aurora Fashions’ management has increasingly been singling the banner out for special attention, such as appointing a dedicated management team, including an international director as far back as 2009.
Karen Millen has always been the most internationally-focused fascia owned by Aurora Fashions, and this is an area that such as the international director have long suggested that the group intends to focus on as an area of development, culminating in the decision to run Karen Millen as a separate company.
The aim of spinning off Karen Millen is to fuel accelerated growth in the near and long-term future. The brand plans to double its sales to £500 million between 2011 and 2016. Part of this plan includes international expansion into China, Canada and Latin America.
Even in 2008, the company had plans to double its international sales – then standing at £85 million – within the following five years. The most recent indications are that overseas sales in 2011 have already risen to £150 million – 60% of Karen Millen’s total sales – suggesting that its international progress is well on track and supporting its strategy to concentrate further on international growth.
Karen Millen has already achieved higher sales than some of the most established British brands with a similar premium offering, such as French Connection and Ted Baker. However, it will need to work hard to compete with other leading international brands with a similar positioning, especially those which are part of a group such as Gap Inc’s Banana Republic.
H&M’s COS also poses a threat as. although it currently has a limited international presence, it has the backing of the world’s fifth largest apparel company, which is currently focusing on expanding its boutique-style fascias such as COS. Now that Karen Millen has separate management, its pace of growth should increase, possibly paving the way for a potential sale, which would lead to additional funding for the Aurora Fashions group.
The Karen Millen spin-off leaves Aurora Fashions free to concentrate on developing its three remaining chains. It is likely to try to increase their global presence as the UK is one of the most mature apparel markets, with an expected constant value CAGR of only 1% over the forecast period. A possible means of funding this growth could be through the sale of Karen Millen, which should not struggle to find potential buyers considering its strong performance.
However, Karen Millen has managed to establish a prestigious name for itself and has an established premium market positioning. It will be extremely difficult for Oasis and Warehouse to become established international brands as even they face an overcrowded mass-market fashion scene, even in their home market.
In order to develop Oasis and Warehouse internationally, Aurora Fashions would need to invest a significant amount in marketing, as well as fund the continued development of its multichannel operations. Coast would find it easier to make a name for itself as, apart from Karen Millen, there are no other leading international apparel brands specialising in occasionwear.
Through its development of Karen Millen, Aurora Fashions has now gained experience of operating an international brand and this will prove valuable if it has global growth ambitions for its other fascias. The potential future sale of Karen Millen, which could be a possible result of the spin-off, would also provide funding for the international growth of Oasis, Coast and Warehouse. However, Coast has the strongest international prospects due to its strong niche positioning, so it would be wise for Aurora Fashions to prioritise international growth for this chain above its sister brands.