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Asos wobbles in run up to Christmas, but is a fashion surge waiting in the wings

By Paul Skeldon December 18, 2018 - 12:12 pm

Asos, the ultimate fashion marketplace, has sent shudders of fear through the City and the wider retail world, longing worse than expected profits – and leading to many analysts to breathlessly predict the death of retail.

However, the reality is perhaps not quite so troubling.

Looking at the fast fashion company’s results, we find that although its total retail sales grew by 13% in the three months to November 30, with sales up in markets including the UK (£237.1m, +19%), EU (£203.8m, +18%) and US (£85m, +13%), that had fallen “significantly behind” expectations.

And it is this last sentence that is most contentious. Asos is ‘mega growth’ performer, which analysts and investors don’t necessarily view as a bell-weather of the whole sector, but more a vanguard or outlier of what the best of the best can do.

Following a poor Black Friday and heavy subsequent discounting the retailer isn’t performing perhaps as well as it might, but it isn’t the end of online retail as BBC News seems to be predicting as I write.

Of course, the drop at Asos is troubling, but is more a symptom of the current uncertain climate, rather than a fail. According to the company’s trading statement: “The current backdrop of economic uncertainty across many of our major markets, together with a weakening in consumer confidence has led to the weakest growth in online clothing sales in recent years. We have recalibrated our expectations for the current year accordingly.”

The company’s new forecasts predicts sales growth of 15% in the year to August 2019, where it previously expected growth of between 20% and 25%.

Asos said that it now expects earnings before interest and tax to grow by 2% (previously 4%), and is expecting to reduce its capital expenditure to £200 million.

The Asos figures suggest that it’s winning more customers – with a 19% increase in active customers – but that it’s dropped its average selling price – by 6% – in order to win that business. Average basket sizes are up by 3%, with order frequency up by 5%, but average basket sizes are down by 3% at the same time.

Better times just around the corner?

However, these are extraordinary times – and the uncertaintly isn’t going to last for ever. Brexit is now having a tangible impact on consumers spending, with many hanging on to their money as they wait and see just how disasterous Brexit will be.

This will be clear by Early January.

Off the back of this, there is also a predicted Boxing Day surge in online spending. According to research by Yext, a digital knowledge management (DKM) firm, online consumer behaviour in the UK suggests a significant uplift in post-Christmas spending, with web visits to local clothing listings set to surge above the seasonal average on Boxing Day, based on 2017 data showing a 47% increase.

So while the Asos results are troubling at this time of year, they are perhaps not telling the whole story and it will be after Christmas that proves to be the lucrative part of the sales cycle.

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