Majestic Wine this week said it was in advanced discussions to sell its multichannel business as it looks to focus on its online potential.
The move comes months after the retailer said it would prioritise its online Naked Wines business ahead of its multichannel Majestic Wine business,
It also comes as Majestic reported pre-tax profits of £506.1m in the year to April 1, up by 6.3% on the same time last year. Pre-tax losses came in at £8.5m, from a profit of £8.3m last time. That, said Majestic, was down to a £11.1m write-down of the value of its stores.
Majestic Wine chief executive Rowan Gormley said the decision came from a position of strength, at a crossroads for the business. “Our intention is to sell the business and we are at an advanced stage with multiple bidders,” he said. “A further update will be provided if and when negotiations conclude, at which point we will seek shareholder approval to move ahead. If we are unable to complete the process over the summer, in time for the important Christmas and New Year season, we will continue to run the two businesses independently of each other and look to restart the process in 2020.”
He said that while the Majestic Wine business now had revenue 20% higher than it did four years ago, with online sales up by more than 50%, and a greater focus on customers rather than stores, it was the Naked Wines business that had the greater potential for growth. Both businesses, said the retailer, had good long-term potential but there were only resources to invest in one.
“Majestic Wine started life with a disruptive model that challenged the status quo,” he said. “Now is the right time to do it again under the Naked brand.”
If the sale goes ahead, subject to shareholder approval, the name of the quoted company will be changed to Naked Wines plc, and the proceeds of the sale will be used to pay off debt while investing in Naked Wines growth and returning cash to shareholders.
Subscription business Naked Wines now sells in the US and Australia as well as the UK. In the last year the retailer invested £19.1m in new customer acquisition, including £3.5m in digital marketing, and forecasts that this will pay back fourfold. That level of digital investment is expected to increase to between £4m and £5m in the current financial year.
Majestic Wine is a Top250 retailer in IRUK Top500 research, while Naked Wines is Top500.
Our view: A growing number of retailers are currently looking to rebalance their multichannel operations as customers move their spending further online and spend less time in stores. This decision to focus entirely online takes that a significant step further – although Majestic has previously said that it may open a small number of Naked Wines stores. The deal, which will require shareholder approval, represents a decision that stores will be much less important for wine merchants in the future. It will be interesting to see how many – including customers – agree.