Top News Stories ~ 25th – 31st January 2021

1. GAMESTOP – REDDIT VS WALL STREET

Video game store GameStop has become the talk of the market this last week, as a frantic clash between Wall Street and Reddit users put GameStop in the middle.

In this past year, GameStop has been struggling and announced plans to close 450 stores. Last April, GameStop’s share price fell to just $3.25. Institutional investors, including the $13bn hedge fund Melvin Capital, saw an opportunity to make profit from betting against GameStop’s share price – ‘short-selling’. Users on Reddit called WallStreetBets realised Wall Street were betting GameStop stock would go down and would make big money if it did.

WallStreetBets decided to buy into GameStop shares (or options to buy them). These amateur investors decided to band together to raise the price and pushed up the share price to astronomical levels causing massive losses for short-sellers (‘short-selling = a way of profiting when the price of an asset, including shares, falls).

Short-selling is very risky as the stock must always be bought back at market price and returned to the exchange, even if the price rises massively. Therefore, losses from shorting are unlimited. This is what happened to short sellers of GameStop. Investors successfully pushed GameStop’s share price up to more than $350 by Wednesday. Any short seller that had borrowed GameStop shares at the start of the year and sold them in the market for $18.84 had to find another $301.16 per share to buy them back again and return them to their owner, causing those firms to lose more than $14 billion.

Trading platforms such as Robinhood restricted trading of the stocks. Robinhood was sued by customers, accused of manipulating the market by preventing customers from trading. The frenzy has caught the financial world off guard and raises some significant moral and regulatory questions.

The GameStop battle has now moved on to silver as prices surge.

THOUGHTS AND IMPLICATIONS

Short-selling is perfectly legal and many experts argue it is an important way to allow markets to determine the ‘true’ price of any asset. It’s also a method of speculation that can increase volatility and reduce stability. Whether the rules change or not is only a question that will be determined by time.

Small investors made a fortune from this, but analysts say they may lose money when the bubble bursts as, typically, it ends badly. GameStop shares may tumble sharply if confidence starts to fall if people start to take their money out, and many people will be left with heavy losses they cannot afford.

If people start going bankrupt, they may argue they were essentially lead up the garden path which could raise demands for congress to act to try and limit the potential losses people could make carrying out these kinds of trades.

Now, the battleground has shifted to other shares that have been bet against by hedge funds including BlackBerry, cinema chain AMC and American Airlines.

Image by Reuters Images.

2. BOOHOO BUYS DEBENHAMS

Boohoo has purchased the brand and website of Debenhams for £55 million. As this price tag does not include any of the retailer’s 118 high street stores, this deal will not save any of the 12,000 jobs at risk.

Boohoo said the deal was a huge step in its plans to create the UK’s largest marketplace. Boohoo has recently bought the brands of Oasis and Warehouse, Coast and Karen Millen. Boohoo is now in talks to buy Dorothy Perkins, Wallis and Burton Brands.

Debenhams has around 300 million visits to its website a year, making it a top 10 UK online retailer already. Boohoo said it will rebuild and relaunch the site, opening it to third party fashion brands as a “marketplace” for fashion, beauty, sport and homeware.

THOUGHTS AND IMPLICATIONS

Debenham’s has a largely older generation as its customer base. This raises the questions as to whether their customer base will now change, or whether the older generation will begin shopping online more. At present, as we can only currently shop online with stores remaining closed due to the lockdown restrictions, this may assist and push all ages to shopping online more confidently. Perhaps the convenience of it will be enough to turn heads and change norms.

In any event, towns and city centres will definitely look much emptier once the pandemic trading restrictions are lifted. High street stores seem to be at a crossroads: adapt to trading largely online, or suffer the consequences.

Image by Getty Images.

3. ASOS BUYS TOPSHOP, TOPMAN AND MISS SELFRIDGE

ASOS has bought the Arcadia brands Topshop, Topman and Miss Selfridge in a deal worth £295 million. It is paying £265m for the brands and a further £30m for the stock.

Administrators for Arcadia confirmed the deal, saying that 300 people employed by the brands in design, buying and retail partnerships would transfer to Asos. However, the people who worked in the brands’ physical stores have not been mentioned, putting 2,500 jobs at risk.

THOUGHTS AND IMPLICATIONS

Online retailers seem to be taking over, both in terms of market share and now physically. Traditional high street stores, especially Debenhams which was founded in 1778, have struggled this past year beyond measure. It seems as though these high street stores are dying out or are either struggling, and have been saved by online retail websites which seem to be less affected by the pandemic. ASOS has seen strong sales in the pandemic and is already one of the biggest wholesalers for the brands that it has acquired. Clearly, in order to survive in the long term, high street stores will need to adapt quickly to online, or suffer the consequences.

Council leaders across the country will also be concerned at the rapid exodus from the High Street. Topshop once had 300 shops. Town and city centres will definitely look much emptier once the pandemic trading restrictions are lifted, especially with the double blow from Boohoo buying Debennham’s brand and website only also.

4. PAPERCHASE RESCUED

Retailer Paperchase has secured a rescue deal which saves a huge 90 of Paperchase’s 125 stores and 1000 jobs. Its sale is to a newly incorporated company, Aspen Phoenix Newco.

With schools and offices closed, Paperchase has lost a majority of its customer base as it mainly sells stationary, cards and gift wraps. In 2019, it underwent a company voluntary arrangement (CVA) due to challenging trading conditions. However, Paperchase is confident that it will return to profit as the world begins to return to some normality. Paperchase said that under its new ownership, it would remain “an omni-channel business, albeit with a smaller, more relevant, retail footprint”.

THOUGHTS AND IMPLICATIONS

Although challenges lie ahead, the saving of such a large number of jobs is certainly positive news. The chain is the latest of a string of high-profile retailers to hit trouble in the past year. Coronavirus restrictions which shut non-essential shops piled on the pressure. The sector was already battling with the shift to online sales, coupled with rising costs, including rents and higher minimum wages.

Image by Derby Telegraph.

5. DR MARTENS SHARE PRICE SOARS

Dr Martens’ shares soared during its Initial Public Offering (IPO) last week, raising 19% on the day. The IPO on the London Stock Exchange was a success and raised nearly £1.3 billion.

The famous boot brand made its first boot in 1960. Just as it was back then, their boosts still boast their trademark yellow stitching. Despite the pandemic, the business has gone from strength to strength, posting £86.3 million in profit for the half year to September 2020.

The spike in share price gives Dr Martens a valuation of almost £4 billion. The company had priced its IPO at between 330p and 370p, and it has hit the top end of the range, settling last week at 430p. Due to high demand, it could sell a further 52.5 million shares. The group is selling as much as 40% of the company – 35% in the immediate offer plus more if demand requires it, through an over-allotment option.

Dr Martens has been owned by private equity group Permira since it bought the business for £300 million from the Griggs family, who founded it. It has since undergone a turnaround with the launch of many new ranges and stores.

Its full admission to the Stock Exchange, and unconditional dealings in the shares, will start on 3rd February.

THOUGHTS AND IMPLICATIONS

The apparent success of the debut gives confidence to others seeking flotations in London in the weeks and months ahead including Moonpig, the online personalised gifts-to-greeting cards retailer, and Deliveroo.

Thanks for reading! If you’re wondering how to be ‘commercially aware’, head over and read my blog post “How to Be Commercially Aware”.

*Disclaimer – All views expressed on this site are my own and do not represent the opinions of any entity whatsoever with which I have been, am now, or will be affiliated.

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A future trainee solicitor encouraging and supporting social mobility, and showing you anything is possible.

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