Can Asos turn around its spiral into widening losses?
Asos is doing everything in its power to undo its widening losses that are nearing negative £300m, following the height of popularity during the Covid online shopping boom – but have consumers simply moved on to other competitors?
If Asos’ estimations are correct, the online fashion retailer will be facing its second year of falling sales as big as 5% to 15% in FY24. Business has looked bleak for the retailer, and as of 3 September, its loss-before-tax widened to £296.7m, UP from a loss of £31.9m in 2022.
That said, group CEO José Antonio Ramos Calamonte said Asos has managed to reduce the stock balance by roughly 30%, which improved the core profitability of the business. Calmonte also nodded to a “stronger” balance sheet moving forward and a “refreshed” leadership team.
“Encouragingly, stock that was brought in under our new commercial model over the summer months has performed strongly and this gives us the confidence to accelerate the rollout of our new processes,” Calmonte said. “As such, we are taking decisive action in FY24 to clear stock brought in under our old model, while substantially improving our speed to market and investing in our brand, reminding our customers what we’re really about: fashion.”
As part of the retailer’s plans to cut costs in a bid to boost profitability, it was announced yesterday (2 November) that its Midlands warehouse will be closing.
Retail expert and the founder of online e-commerce platform, Wethrift, Nick Drewe, has noticed that Asos is grappling with more than just reduced consumer spending and rising inflation; what was once one of the UK’s most successful fashion brands is failing to ride the zeitgeist.
Drewe says: “The rise of ultra-fast fashion brand and major competitor, Shein, has certainly had a negative impact on Asos, as previous customers are tightening up their spending, and opting for significantly cheaper alternatives. The low prices offered by Shein in particular have made it near enough impossible for Asos to remain competitive in the market.
“The fashion brand also has to combat the shift in consumer behaviour. Where online shopping boomed during the period of the Covid-19 pandemic, it has since dropped off, as more shoppers are opting for in-store shopping experiences. This is one area where Asos was already at a disadvantage against competitors who had both an online and a physical store offering.”
He added: “One of the best approaches for Asos to take would be to review their operational processes in order to cut overheads. Despite having a potentially positive impact, this approach may see further closures and more streamlining of operations throughout the year ahead, as Asos’ new business model focuses on reducing stock levels. One thing’s for sure, it will certainly be a challenging year ahead for online fashion brands.”
ParcelHero’s head of consumer research, David Jinks, believes that despite Asos’ losses nearing £300m, the business is still “far from sinking”.
“Asos started life ‘As seen on Screen’. Some experts are expressing doubts that the fashion giant will continue to be seen on our PC and mobile screens much longer as losses widen,” Jinks says. “It’s hard not to think that the online fashion giant expanded too rapidly during the pandemic-era online boom, opening a brand new, state-of-the-art £90m fulfilment centre in Litchfield in 2021 at the height of the e-commerce sales surge.”
Jinks also points to a market post-lockdown that is changing fast – too fast for Asos to keep up with – as new competitors like Shein beat it at its own game: low prices. He also agrees that the resurgence of High Street fashion has also lured away its audience.
“Long-term, ASOS’ new “Back to fashion” focus can restore its fortunes, although it’s not going to be a pleasant transition,” Jinks continues. “It’s certainly not shying away from the challenge, quietly announcing it will now sell or mothball its prized new Litchfield warehouse, once it has cleared its hefty backlog of stock.”
Asos is not the only online retailer struggling to adapt to a post-Covid market; Boohoo has also suffered a pre-tax loss of £9.1m for its latest half-year results, and even Amazon has slashed all but three of its own-label clothing brands to adapt to the changing market.
