Asos has warned that profits could fall to just £ 20 million this year from more than £ 190 million last year as customers who have no money affected by rising inflation return more items to online fashion retailers.
The warning, given in an unplanned trading update, sparked a sharp sell-off in Asos shares, which hit a 12-year low. The stock price fell close to £ 8, compared to £ 59 in March 2021, when the company took advantage of the surge in online shopping during the Covid-19 pandemic.
Shares of Asos reached a 12-year low
The retailer said it was seeing a “significant increase” in returns in the UK and Europe, which would have a “disproportionate impact on profitability”.
Matt Dunn, chief operating officer, said there was a major change in customer behavior between March and April and in May, when more customers returned Asos products. “This is not a specific brand, it is not a specific product, a specific category or a specific country, but it is a widespread phenomenon. It correlates very strongly with the cost of living … it’s hard to conclude that it’s anything other than the cost of living. “
He described how customers, after buying something, can understand when they look at their bank balance sheet that they do not have as much money as they thought they had. “They bought it and then they think, ‘I can’t afford it.’
Asos does not charge for returns and currently has no plans to start doing so, despite the “minor” costs of shipping, handling, cleaning and restoring stocks of returned items in warehouses, Dunn said.
He said Asos’ 20-year-old customers were particularly affected by the cost of living crisis as rents rose in many countries, along with the price of petrol and food. He warned that weak consumer spending could affect growth for the rest of the year.
As a result, the company lowered its full-year profit forecast to between £ 20 million and £ 60 million, from £ 194 million a year earlier. Asos first warned of gains in October 2021, forecasting between £ 110m and £ 140m. In April, the company said the war in Ukraine could lead to gains of £ 14m.
The warning comes hotly after the collapse of rival online retailer Missguided, which called administrators last month after being sent a petition for liquidation by clothing suppliers who owed millions of pounds.
Fast fashion retailers enjoyed rapid growth during the pandemic, when shoppers were forced to shop online and save money typically spent on commuting, travel and restaurants. However, these same companies are experiencing difficulties as physical stores reopen and inflation puts pressure on consumer finance.
Another competitor, Boohoo, said in a trade update Thursday that while revenue fell 8% in the three months to May, the percentage of returned items has returned to normal and that net sales, which reflect the level of returns, have improved in the UK .
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Asos has promoted its Chief Commercial Officer Jose Antonio Ramos Calamonte to Chief Executive Officer and appointed Jorgen Lindemann as Chairman. Calamonte is a retail expert who leads the marketing strategy for brands including Inditex, Esprit and Carrefour Spain, and joined Asos in late 2020 from the Portuguese fashion firm Salsa Jeans, where he was CEO for nearly two years.
Calamonte said Asos, along with other fashion retailers, will offer fewer promotions in the coming months as they adjust their stock levels. He put his weight behind Asos’ strategy and expressed confidence that younger people would continue to buy her clothes and accessories in the long run.
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