Asos CEO ‘astonished’ by discounting levels as promotions hit profit

Asos boss Nick Beighton says there has been an “unprecedented level” of discounting in the final quarter of the year, which caused the online retailer to issue a profit warning to the stock market this morning.

Asos

A combination of “unprecedented levels” of discounting from competitors and “fragile” consumer confidence have been blamed for Asos’s shock profit warning this morning, which has since seen shares plummet by 40%.

Speaking on a conference call, the online retailer’s CEO, Nick Beighton, said he has been “astonished” by the level of promotions and discounts in the run-up to Christmas, and in hindsight “might have gone harder” with Black Friday activity.

While Asos went with a 20% blanket discount on Black Friday, the same as in previous years, Beighton said it “didn’t seem to be enough compared with what others were putting out there”. The overall level of promos during the period has been “much greater” than the online retailer thought would be the case.

“In terms of discounting, we have seen in fashion an unprecedented level of discounting, certainly something I’ve not seen before,” Beighton said. “We responded to some of that by increasing some of our own promotional [activity], but certainly not as much as what we’ve seen in our peer group.”

Sales for the three months to 30 November delivered “solid growth” of 14%, however, November saw a “significant deterioration”, made worse by the warm weather contributing to a reduction in average basket size by 6%.

Asos is now guiding that sales growth for the financial year to August 2019 will be 15%, down from the between 20% and 25% it had previously expected. Retail gross margin will be -150bps, where previously it was predicted to be flat at 49.9%.

The warning shows that even online retailers are not immune from the challenges that many on the high street have been struggling with for a while. Much of the high street woe has been blamed on pureplay ecommerce players, but Asos’s struggles suggest there are also other factors at work.

READ MORE: It’s time retailers ditched Black Friday

Natalie Berg, a retail analyst and founder of NBK Retail, says Asos’s profit warning is a reminder of the harmful effects of Black Friday.

“The last thing the sector needs right now is a profit warning from one of its few star performers a week before Christmas,” Berg says.

“Ecommerce is often positioned as the death knell of the high street, so you know things are bad when even the online giants are struggling. Retail is in dire straits. Not only is the sector facing profound structural change, but ongoing consumer pressures and Brexit uncertainty have kept shoppers from loosening their purse strings. November is a critical month for retail, but consumers have been trained to buy on promotion.”

The news from Asos has hit shares in the wider retail marketing, with the likes of JD Sport, Boohoo and Next seeing their marketing cap falling. The impact was enough that online fashion retailer Boohoo felt it needed to issue a statement this morning assuring the stock market of its performance.

“Boohoo group plc, a leading online fashion group, is pleased to confirm that the group’s trading performance remains strong, with record Black Friday sales across the group and continues to trade comfortably in line with market expectations,” it said.

Boohoo will issue an update for the four month trading period to 31 December on 15 January 2019 while Asos will update the market on 15 February.

Latest from Marketing Week

NOT REGISTERED? IT'S FREE, QUICK AND EASY!

Access Marketing Week’s wealth of insight, analysis and opinion that will help you do your job better.

Register and receive the best content from the only UK title 100% dedicated to serving marketers' needs.

We’ll ask you just a few questions about what you do and where you work. The more we know about our visitors, the better and more relevant content we can provide for them. And, yes, knowing our audience better helps us find commercial partners too. Don't worry, we won't share your information with other parties, unless you give us permission to do so.

Register now

THE BEST CONTENT

Our award winning editorial team (PPA Digital Brand of the Year) ask the big questions about the biggest issues on everything from strategy through to execution to help you navigate the fast moving modern marketing landscape.

THE BIGGEST ISSUES

From the opportunities and challenges of emerging technology to the need for greater effectiveness, from the challenge of measurement to building a marketing team fit for the future, we are your guide.

PERSONAL AND PROFESSIONAL DEVELOPMENT

Information, inspiration and advice from the marketing world and beyond that will help you develop as a marketer and as a leader.

Having problems?

Contact us on +44 (0)20 7292 3703 or email customerservices@marketingweek.com

If you are looking for our Jobs site, please click here