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Missguided: what went wrong?

Online womenswear retailer, Missguided, recently made shock waves in the industry with the appointment of advisory firm Teneo to explore ‘strategic options’ for its future, following the exit of its chief executive officer, Nitin Passi. We look at Missguided’s rise and fall over the past decade and how it got to this point.

As the face of online shopping for young women around the world, Missguided has faced its fair share of troubles despite its ever-present popularity within the fast fashion industry. Now the company is eyeing potential buyers, it puts into question the future of the business.

Since its launch in March 2009, Missguided witnessed immediate growth within the UK, having consequently expanded into France, Germany, the USA, and Australia. Nitin Passi, the chief executive officer (CEO) who founded the womenswear brand with a £50k loan from his father over a decade ago, saw the Manchester based company secure a substantial turnover above £200m a year.

Passi started working in fashion after he graduated with a degree in business management, having started his career working for a wholesale business in New York and London before setting up his own business, which is how Missguided was born.Passi saw a demand for young women’s fashion and tapped into the change in shopping habits that’s seen online sales grow sharply.

When Missguided first began, most of the initial ranges were bought ready-made from wholesale suppliers. After a couple of years, Passi started to build his own product team for the brand and today that team, which now designs the majority of the styles the company sells in-house. Originally, Passi was the sole employee for Missguided when the business first began, and he bought all the products, picked and packed the parcels, created all the banners, wrote all the product descriptions, and even handled customer care.

The company has developed global development in recent years, now shipping to over 180 countries and locally active in the US, Australia, France, Spain, Ireland, Germany and Poland. However, after eight years of success, Missguided lost a sizable £26m in the financial year 2017/2018. Despite its popularity amongst women aged 16 to 35, what exactly went wrong for the online giant?

Inevitably, Missguided has received criticism throughout its history. In particular, the online retailer’s USA branch was sued by Kim Kardashian, an American media personality and businesswoman, on 4 July 2019 for “knocking off” designer items which the socialite wore. Kardashian pointed towards an instance when merely hours after she had posted an image of herself wearing a gold dress designed by her husband on Instagram, Missguided uploaded a photo of a model in a similar dress along with the caption: “The devil works hard but Missguided works harder.” Kardashian claimed that Missguided USA doesn’t just “replicate the looks of celebrities” but “systematically uses the names and image” of stars to promote its website.

After facing off in court, Missguided was ordered to pay $2.7m (£2.11m) in damages, and the company was banned from using the reality star’s trademarks in connection with the sale, marketing or distribution of its products. 

The brink of collapse: securing investment

In the year to March 2021, Missguided achieved sales of £287m, with the UK and US its two largest markets. However, the Covid-19 pandemic inevitably created a ripple effect throughout the retail industry with many businesses being hit with supply chain disruptions, and Missguided was no exception. The company has been hit by increased costs and “difficult trading” as the return of high street retailers, such as Primark, H&M and New Look, following the easing of lockdown restrictions has led to “increased competition”.

With the snowball effect of Covid-19 causing consumers’ pockets to tighten for discretionary spending, Missguided dropped a bombshell at the tail end of last year that the company was facing bankruptcy and was consequently selling half of the business to Alteri Investors, which is backed by US private equity giant Apollo, to save itself. With the backing of Alteri Investors, Missguided said its management will be able to “drive improvement” in its performance, and will work with management to transform the group’s profitability.

Missguided added that the investment, which comprised both debt and a 50% acquisition of the group’s equity, will provide the business with the liquidity and support it needs to overcome short-term supply chain challenges, as well as a platform to return the business to sustainable profitability.

At the time, Gavin George, Alteri Investors founder and CEO, said: “As a digital pure-play retailer, Missguided is exposed to core markets enjoying strong double-digit growth, and the brand is very well-placed to capture the opportunity that these positive market dynamics present.”

Missguided has also since been met with the challenges of dealing with the cost of living crisis which has also seen a negative impact on trading, especially on non-essential items. Results from the Opinion and Lifestyle Survey (OPN) covering the period 16 to 27 February found that due to an increase in the cost of living, 51% of adults spent less on non-essentials. At the time, the Office for National Statistics (ONS) revealed that the annual rate of inflation hit a new 30-year record with a rise of 7% in the 12 months to March 2022, also piling on additional costs for the business.

Sustainability issues

Another hurdle which may have dampened trading for Missguided is the rise in sustainable fashion trends. According to Pew Research, Gen Z is “overwhelmingly” worried about climate change as 76% say that it’s one of their biggest societal concerns, while 37% make it their number one concern. Similarly, research from First Sight found that the majority of Gen Z consumers are often averse to fast fashion and are keen to purchase second-hand, as seen in the success of brands like Depop, ThredUp or the RealReal.

Consequently, Missguided has received further criticism for its disregard towards the environment. According to Good on You, the sustainable and ethical fashion brand ratings movement, Missguided’s environment rating is ‘Very Poor’. The brand fails to publish “sufficient relevant information about its environmental policies to give a higher rating”. Additionally, the delivery platform asserts that as a fast fashion brand dropping up to 1000 new products every week, Missguided “clearly promotes overconsumption and as a result, creates a lot of waste”.

Overall, Missguided was found to be lagging behind other UK retailers in terms of sustainable practices and, in the words of The Independent, it is one of the least sustainable fashion brands in the UK. in 2018, the Environmental Audit Committee (EAC) wrote to 16 British retailers asking them to submit evidence detailing what measures they are implementing to reduce the environmental impact of the garments they sell. However, Missguided was among those who had not signed up to targets set by the Sustainable Clothing Action Plan (SCAP) to reduce their carbon, water and waste footprint. 

The EAC’s report found that the brand had not signed up to the Action, Collaboration, Transformation labour rights agreement that is working towards getting a living wage for all garment workers. To this date, four years after the publication of the report, Missguided still has not taken steps to communicate or provide “sufficient” information about its policies, despite announcing this month that in the medium term, its focus will shift to initiatives aimed at delivering sustainable growth, but information about how this will be achieved is yet to be seen.

Overall, consumers are more socially conscious than ever and are looking to buy from eco-friendly brands. However, as Missguided fails to be transparent about its sustainability, this could potentially be impacting sales. First Insight found that Gen Z are more likely to make purchase decisions based on their values, with three out of four Gen Z consumers prioritising sustainability over brand name when making a purchase. The majority of Gen Z shoppers prefer sustainable brands and are even willing to spend an additional 10% more for eco-friendly products.

Where are they now?

As the womenswear company attempts to get back on its feet, Missguided made the announcement last week (20 April) that Passi is set to step down from his role as CEO of the company, although he will remain on Missguided’s holding company board to represent his family’s ongoing stake in the business. Despite having “great pride in what we’ve built”, Passi says this is the right moment to step away from the day-to-day leadership of Missguided as the business explores partnership options after being hit by soaring costs and difficult trading.

This follows Missguided’s recent review of the business structure which concluded it “needs to align its costs to better match its current performance”, amid supply chain disruption, cost inflation and lowered customer demand. As a result, Missguided launched a 45-day consultation process and put 140 jobs at risk in February as part of its proposed restructure. The consultation came to an end last week and the figure has reportedly dropped to 63 following a redeployment and a voluntary redundancy programme.

Consequently, the businesses further announced last week that it has appointed Teneo, an advisory firm, to explore “strategic options” for Missguided’s future, in a bid to seek “strategic partners” as well as possible buyers. The company is attempting to “bring infrastructure Missguided needs to deliver the next stage of its progress”, following “significant progress in addressing stock issues, streamlining warehouse operations and reducing head office costs”. Missguided said it can now accelerate plans to find a strategic partner to deliver the next stage in its turnaround and “maximise its potential”.

Missguided’s chair, Ian Gray, said at the time: “Missguided has made substantial operational progress since receiving new investment at the end of 2021, placing us on a sounder footing in a very short space of time and I want to thank everyone for their hard work. That work means we’re now in a position to accelerate plans to explore strategic options for the business.”

Meanwhile, last Saturday (23 April 2022), speculation began to circle the industry of a possible takeover from fellow retail giants. This is Money reported that JD Sports has been tipped as a potential suitor to acquire Missguided; while discussions are claimed to be at “a very early stage”, bosses at the sportswear retailer are reportedly discussing a potential move. Similarly, fast fashion rival Boohoo and Mike Ashley’s retail group Frasers are also said to be possible contenders.

All in all, despite controversies surrounding Missguided’s authenticity and sustainability, the retailer has managed to withstand every obstacle thrown its way. It’s yet to be seen what the future of the womenswear brand will look like, and whether Missguided will be able to come out on the other side and remain afloat.

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