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.
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.