Online fashion giants Asos and Boohoo feel heat from cost-of-living crisis: reaction

Online fashion giant Asos warned that a cutback in spending by shoppers amid the cost-of-living squeeze will dent profits, as it unveiled a new chief executive and chairman.

The trendy group, whose name stands for As Seen On Screen, trimmed its outlook for sales and profits after seeing a sharp rise in order returns as consumers rein in spending. UK sales were up just 4 per cent to £431.8 million in the third quarter to May 31 as returns rates rose, while total group revenues fell to £983.4m from £987.9m a year earlier.

It now expects full-year sales to grow by 4 per cent to 7 per cent with underlying pre-tax profits of between £20m and £60m.

Chief operating officer Mat Dunn said: “What is now clear, based on the significant increase in returns rates that we have seen, is that this inflationary pressure is increasingly impacting our customers’ shopping behaviour.”

The warning came as the group promoted chief commercial officer Jose Antonio Ramos Calamonte to the top job and named non-executive director Jorgen Lindemann as chairman in a clean sweep at the helm.

Laura Hoy, equity analyst at financial services group Hargreaves Lansdown, said: “Expectations were relatively low for Asos and the group confirmed the market’s fears with a profit warning for the full year. With return rates ballooning, the group’s expecting to lean on promotional activity in order to clear its warehouses.

“The question now is how long until shopping trends return to normal. Retail’s been arguably one of the last sectors to feel the pinch of inflation as consumers continue their post-Covid wardrobe refresh.

“Plus, with holidays and events finally on the agenda again, there’s still a need for occasion wear. But these demand drivers are getting flimsier.”

Asos, whose name stands for As Seen On Screen, was founded more than two decades ago and has grown to become one of the UK's biggest online retail success stories.

Meanwhile, rival online fashion firm Boohoo revealed a slump in sales over the past quarter as it battles against fierce competition and higher return rates.

Revenues fell 8 per cent to £445.7m over the three months to the end of May, compared with the same period last year. UK sales dipped 1 per cent but the firm was particularly impacted by heavier declines elsewhere in Europe and in the US.

Nevertheless, Boohoo said it was optimistic as its UK sales improved month-on-month over the quarter and returned to net sales growth in May.

Harry Barnick, senior analyst at Third Bridge, noted: “Boohoo’s impressive growth has stalled, dampened by inflation and the rising cost of living as consumers begin to tighten their purse strings.

“The sales challenges are compounded by sky-high freight rates and raw material cost inflation. Boohoo is now faced with the challenge of increasing prices in a promotionally driven and highly competitive market.

“Mid-single-digit margin pressure could be experienced in the short-term as Boohoo learns how to cope with the new operating environment.”

He added: “Our experts say Boohoo will have to find creative ways to reduce costs. Improving purchasing costs through fabric consolidation and production locations are key to the success of this cost reduction strategy.”