Tesco by sales volume is a leading retailer of fashion – whether it be it’s own F&F branded clothes, a Regatta hoodie, or a Yumi parka. But recent high-profile failings relating to Tesco’s financial reporting have led to an investigation by the Financial Conduct Authority (FCA) and a lack of confidence within the business. In turn Tesco has fallen out of fashion with its supporters and its share price has dropped by around 45% since the start of 2014.

Unsurprisingly other trading businesses are now rightly questioning whether they could experience a similar situation.

Successful businesses understand their core sales market, the values of their customer base and the importance of maintaining brand integrity. Whilst the leaders of a successful fashion house may be highly skilled in their field, they may well be less experienced in managing the relationships with the various UK regulatory authorities with which their businesses may come into contact. In the fashion sector watchdogs such such as the Advertising Standards Agency, the Department of Business Innovation and Skills, Trading Standards and the Competition and Markets Authority all have a role to play.

Fashion businesses that seek to benefit from the capital that can be raised from a UK stock-market will also be subject to the intensive oversight of the market conduct regulators including the FCA acting as the UK Listing Authority. This would place such businesses in the area of regulatory risk that Tesco now occupies. Once this territory has been entered a fashion business will need to comply with onerous listing and disclosure requirements.

Arguably fashion businesses are more prone than those in other sectors given the propensity for unexpected trading developments. These developments can trigger obligtions to issue market updates on an accurate and timely basis and can easily be breached by unwary companies. Either individual serious breaches, or a pattern of minor breaches by such companies can easily attract the watching eye of a regulatory authority. If these matters are not handled correctly then a business risks stiff enforcement action”

Existing fashion businesses that have raised external market capital, or are thinking of doing so, should pay attention to the Tesco experience. Whilst external market investment brings many benefits and can help support a successful brand into becoming a global proposition the risks inherent should not be understated. Tesco’s recent errors have been described in the media by the Chairman of the UK Parliament’s Business, Innovation and Skills select committee as being “stratospheric” in their magnitude – its brand is being diminished as a consequence. The management of Tesco will now be spending substantial time in trying to repair its regulatory relations, no doubt Tesco would prefer to be focussing on its strategy to revitalise its business rather than manage these regulatory risks.

Given the recent resurgence in the popularity of new initial public offerings, any fashion business considering public investment should make sure they are prepared to handle these new relationships and to learn from the Tesco experience. The last thing a developing brand needs is to fall out of fashion with their regulators and to risk adversely affecting the value of the brand.

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