Selfridges Is For Sale For £4B. But How Much Money Does A Good Department Store Make These Days?
Department stores are on the rocks; everyone knows that. And yet a department store company has just gone on the market for £4B.
Selfridges is one of the most famous department stores in the world, its history the subject of a TV drama series, its huge store on Oxford Street in the heart of London a draw for millions of global shoppers in a normal year. It is owned by the billionaire Canadian Weston family, and following an unsolicited bid for the company, the owners have appointed Credit Suisse to advise on options including an outright sale, React News reported.
So what is for sale, how much money does the company make, and how does its real estate fit into the process? Here’s everything you need to know.
What is for sale?
The sale would encompass Selfridges’ UK and Irish business, which comprises four stores owned freehold: the flagship 580K SF Selfridges department store on Oxford Street, a Selfridges store on Exchange Square in Manchester, and the Brown Thomas and Arnotts department stores in Dublin. It also leases stores in the Bullring in Birmingham and Trafford Centre in Manchester. It does not include the Dutch or Canadian retail businesses owned by the Weston family, React said, or the Primark fast fashion business the family also owns.
How much money does Selfridges make?
The holding company which owns Selfridges filed its results for the year to February 2020 earlier this year, which gives an insight into the company’s profitability in the pre-pandemic world — it is of course an open question about whether it will be able to return to those 2019 levels.
The company made total revenue of £1.5B, or £1.1B if the Dutch business, not part of the sale, is stripped out. Excluding that Dutch business, it made operating earnings before interest, tax, depreciation and amortisation of £268M and pre-tax profit of £36M.
The UK business makes up the lion’s share of those figures. — 91% of the EBITDA of the businesses up for sale and 89% of the profit.
The Irish business produced EBITDA of £21M and profit of £3.6M.
So how has that £4B figure been calculated?
React said that the Selfridges operating business had been valued at £2B, and the owned real estate assets at £2B.
As far as the operating business goes, a valuation of £2B would be an 8.4 multiple of EBITDA. In 2019, New York University professor Aswath Damodaran calculated the average EBITDA multiple for M&A deals across various industries. The average multiple for department store deals was 11 times EBITDA, slightly higher than for other types of retail like apparel companies. Trading for chain department stores in the U.S. and UK was deteriorating even before the coronavirus pandemic, and while Selfridges is more akin to a tourist destination than your average Debenhams or JCPenney, the lower multiple being sought perhaps reflects that new reality.
As far as the value of its real estate goes, Selfridges does not provide a precise breakdown of the value of its real estate, saying only that its “right-of-use” property assets are valued at about £2.4B. At 588K SF, it is the second-largest shop in the UK after Harrods.
How has Covid-19 affected the business?
The results filed don’t have any precise detail on the impact the pandemic had on the business, unsurprisingly saying that it had a “significant short term impact on profitability.” The company had to renegotiate some of its debt covenants to avoid breaches and take out a £300M commercial loan facility to provide liquidity. It made 450 UK staff redundant during lockdown.
How is the business being reinvented for the new world of retail?
Like many of its rivals on Oxford Street, Selfridges has been moving toward more leisure and experiential retail to bring shoppers in, including a basement boxing fitness concept and new restaurants.
It also wants to trumpet its ethical and sustainability credentials. “What Covid has done is accelerate our thinking,” Selfridges Chief Executive Ann Pitcher told Forbes last year. “Thinking that we need to operate in a new way in order to have a future. That we need to look at the environmental boundaries, social boundaries, and the commercial opportunity as a kind of trio for which we come up with a business model."