Asos has warned that profits could slump to as little as £20m this year, down from over £190m last year, as cash-strapped customers hit by rising inflation return more items to the online fashion retailer.
The warning, which was given in an unscheduled trading update, prompted a sharp sell-off of Asos shares, which hit a 12-year low. The share price fell close to £8, compared with £59 in March 2021, when the company benefited from a surge in online shopping during the Covid-19 pandemic.
The retailer said it was seeing a “significant increase” in returns in the UK and Europe, which would have a “disproportionate impact on profitability”.
Mat Dunn, chief operating officer, said there had been an underlying shift in customer behaviour between March and April and into May, when more customers returned Asos products. “It’s not a particular brand, it’s not a particular product, particular category or particular country, but it’s a broad-based phenomenon. It correlates very highly with cost of living pressures… it’s hard to conclude that it’s anything other than cost of living pressures.”
He described how customers, after buying something, might realise when looking at their bank balance that they did not have as much money as they thought they had. “They bought and then they think: ‘I can’t quite afford it.’”
Asos does not charge for returns and currently has no plans to start doing so, despite the “not insubstantial” costs of shipping, processing, cleaning and restocking returned items in warehouses, Dunn said.
He said Asos’s 20-something customers were particularly affected by the cost of living crisis, as rents are going up in many countries, along with the cost of petrol and food. He cautioned weak consumer spending could weigh on growth for the rest of the year.
As a result, the company has lowered full-year profit forecasts to between £20m and £60m – down from a £194m profit the year before. Asos first warned on profits in October 2021, forecasting between £110 and 140m. In April, the company said the war in Ukraine could knock profits by £14m.
The warning comes hot on the heels of the collapse of rival online retailer Missguided, which called in administrators last month, after being issued with a winding-up petition by clothing suppliers who are owed millions of pounds.
Fast fashion retailers enjoyed rapid growth during the pandemic when shoppers were forced to shop online and were saving money usually spent on commuting, travel and restaurants. However, those same companies have struggled as physical stores reopened and inflation put pressure on consumer finances.
Another rival, Boohoo, said in a trading update on Thursday that while revenues fell 8% in the three months to May, the rate of returned items was normalising and that net sales, which reflect the level of returns, had improved in the UK.
Asos promoted its chief commercial officer, José Antonio Ramos Calamonte, to chief executive, and appointed Jørgen Lindemann as chairman. Calamonte is a retail expert who led on commercial 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, would offer fewer promotions in the coming months as they adjust their stock levels. He threw his weight behind Asos’ strategy, and expressed confidence that younger people would keep buying its clothes and accessories in the long run.
