Missguided went badly off course. Could this become a trend?

The collapse of fast fashion retailer Missguided has been a bin fire for suppliers, shoppers and investors. As administrators pore over the books this week, and creditors clamour for their money, the question being asked is: was its demise is a warning bell for the online rag trade, or just an isolated case of one company living up to its name?

Missguided’s creations were once paraded proudly around the pool on Love Island and promoted by a stream of influencers in marketing tie-ups. The Manchester-based firm, or at least its brand, is now destined to become part of Sports Direct founder Mike Ashley’s empire after his firm shelled out £20m for intellectual property rights.

Michael Murray, who has just taken the wheel as the new boss of Ashley’s Frasers Group, has a job on his hands to revive Missguided, his first acquisition since taking the hot seat.

He can cut costs by plugging Missguided into the Frasers warehouse system, and potentially its House of Fraser department stores, but he has taken a gamble on a fashion market that is clearly in flux.

Online fast fashion players enjoyed a boom during the pandemic as competition from the high street was almost wiped out for months at a time. Also, the cost of handling returned items was kept down as shoppers were more likely to keep what they bought, given the trend for less “fitted” looks.

Now party dresses and workwear are back on the agenda, shoppers are sending back more items again, and the costs of fabrics, delivery, warehouse labour and energy have all risen.

Fast-fashion shoppers are also facing a big squeeze on their spending power as bills rise. Under-30s’ discretionary income was down 26% in April compared with a year before, according to the latest Asda income tracker, compared with about an 11% drop for those aged 30 to 64.

For now, many households are still cushioned by savings made during lockdown, when overseas holidays, nights out and commuting were off the cards. But the veteran retail bosses of Marks & Spencer and Asda both expect things to get much tougher this autumn as higher energy bills land on the mat.

Missguided is not the only online fashion purveyor suffering in this suddenly much tougher market. Boohoo recently revealed that profits slumped 94% in the year to the end of February amid weakening demand and the rising cost of deliveries and of handling returned items.

Meanwhile, Asos made a £15.8m pre-tax loss in the six months to the end of February, compared with a £106m profit a year earlier, as it said supply-chain disruption had held back stocks of some of its bestsellers.

These British players are facing increased competition from high street groups – such as Next, M&S, Zara and H&M, which are now doing an increasingly good job online – as well as their cheap and rapidly growing Chinese rival, Shein.

Concerns about sustainability and cash, meanwhile, are fuelling a surge in trading secondhand fashions via websites such as Depop and Vinted, which are taking another slice out of the established market.

Darcey Jupp, an apparel analyst at market research firm GlobalData, said: “The true reason for [Missguided’s] demise was its lack of competitiveness with the likes of Shein and Boohoo. While many UK pureplays have struggled to continue their pandemic momentum in 2021 as in-person shopping returned, Missguided has slipped further than most, with its lack of high-profile celebrity collaborations and uncompetitive pricing contributing to the brand losing the lucrative attention of young shoppers in the UK fast fashion market.”

There are clearly question marks over Missguided’s management. As recently as December, its founder, Nitin Passi, was pledging that there were no grounds on which the company could be found to be unable to pay its debts for a whole year as he secured new investment from private equity group Alteri, which is backed by the deep-pocketed Apollo Global Management.

Alteri took a majority stake in Missguided after shareholders pumped £19m into the business in the year to March 2020, taking the total invested to £60m during its short existence.

Sales rose 8% to £202m in the year to 29 March 2020, according to accounts filed at Companies House, but signs of problems were already there: pretax losses widened to £8.3m from £4.7m a year before as costs, particularly on distribution and marketing, soared.

When the market got tougher, Missguided did not have the resources to survive. It is unlikely to be alone.