With less than eight days until Christmas you would think tills were ringing so fast retailers wouldn’t be able to keep up, but this morning ASOS, followed Primark and Superdry, by issuing a profit warning. A total of £1.4bn has been wiped off the e-com’s market value with shares crashing by 41 per cent.
With this unexpected announcement, ASOS proved digital-first retailers aren’t immune to the frigid economic chill that’s been felt by Marks & Spencer, Boohoo. John Lewis, Primark, Debenhams and House of Fraser.
Mike Ashley, the owner of Sports Direct, which practices a business model underpinned by a discount philosophy, exclaimed, 'November was the worst on record, unbelievably bad…No one could have budgeted for that. Retailers just cannot take that kind of November. It will literally smash them to pieces.’ Echoing Ashley, Nick Beighton, ASOS’ Chief Executive said today, ‘In fashion we are seeing an unprecedented level of discounting, certainly something I have not seen before, and that’s across the board.’
We’re no financial experts, but here are three reasons this armchair critic thinks catalysed ASOS’ profit fall:
1. Though ASOS knocked 20 per cent off the whole site during Black Friday (mirroring the same offer it had practised for the occasion the year before) it believes it wasn’t enough to compete with other retailers.
Problems have been felt across the industry, and while competitive discounting is undercutting the market it’s not the only reason for the profit collapses. Longer, hotter summers and later winters have meant shops, like ASOS, expected to sell expensive items like jackets and coats sooner in the quarter, which meant the overall intake of the financial annum so far has been slashed.
2. A stagnating of salaries, exacerbated by the pound dropping in line with key Brexit statements, has meant disposable income has decreased. When faced with this big squeeze shoppers are choosing cheaper alternatives, turning to ‘value’ alternatives.
3. Less money has also meant less going out. A National Time Use study has shown that Londoners are using public transport less. Cycling is on the rise, as is taxi use (thank you, Uber), but not enough to account for the decrease in bus journeys. The average Londoner is taking 14.5 per cent less public transport trips than it did four years ago. The rise of the Netflix nights-in perhaps indicates people are buying less and particularly less occasion clothes, which are a key vertical for ASOS and its twenty-something audience.