Mr Price Group will be venturing into exclusive menswear retail through its R3.3 billion cash acquisition of a majority stake in Studio 88 group of businesses even though it is reducing its over-dependence on the apparel division.
Mr Price yesterday announced that it had agreed to buy 70 percent of Blue Falcon Trading 188, which owns the Studio 88 group of businesses, from RMB Ventures Six and current management of the Studio 88 Group.
The Studio 88 Group is the largest independent retailer of branded leisure, lifestyle and sporting apparel and footwear in South Africa, generating revenue of R5.6bn for the financial year ended September 30, 2021.
The business owns and operates retail outlets that offer clothing, footwear and accessories, trading through Studio 88, SideStep, Skipper Bar, John Craig and other chains.
It operates through in excess of 700 stores which are positioned in central business districts, regional malls and rural high streets, and via its e-commerce platforms.
The Studio 88 Group is highly cash generative and operates on a cash-only basis, which contributes to its value positioning.
The inclusion of the Studio 88 Group would increase Mr Price’s annual revenue to over R28bn and would prospectively become the group’s second largest of nine trading divisions.
Mr Price’s store footprint would also increase to more than 2 400 stores and the group would employ over 25 000 people.
Mr Price chief executive Mark Blair said the brands offered by the Studio 88 Group were complementary to Mr Price’s existing customer positioning and, combined, would deliver on the group’s strategic positioning across the fashion-value and aspirational value segments.
Blair said the partnership with Studio 88 Group would give Mr Price an ideal entry into the high growth urbanwear and athleisure segments of the market, which present them with a significant non-competing channel.
“We will continue to be a predominantly private label group, but our ‘Value Champion’ purpose can also be lived out through the aspirational fashion market, and we are very excited about these prospects,” Blair said.
“The enterprise value, that is the value for the whole business, was set at R4.7bn but as you know we are not buying 100 percent, we are actually acquiring 70 percent of the business for R3.3bn.
“The lion’s share, 50 percent of our group, is currently Mr Price apparel. Incidentally that was actually 55 percent before the Power Fashion and Yuppiechef, but one of the things that was an intent on our side was to lessen our dependence on our biggest contributor.
“So over the last 18 months or so Mr Price apparel would have gone from 55 percent contribution to 40 percent, which in my mind is a much better balance.
“It’s not to say Mr Price apparel doesn’t have growth prospects, they certainly do. They are a very healthy part of our business, but from a group perspective I’m much happier with a more equitable split and what contributes to our group revenue.”
Blair said they were also encouraged by the fact that Studio 88’s seven senior management team members who are shareholders will remain in their current roles and as shareholders.
Absa Asset Management portfolio manager Carmen Mpelwane said the market had roundly welcomed Mr Price’s investment into Studio 88.
“Mr Price’s share price has risen more than 5 percent today, showing that the market is responding positively to the news of their investment and diversification,” Mpelwane said.
Mr Price share price ended the day yesterday up 6.9 percent at R255.75.
BUSINESS REPORT ONLINE