Are we now bored of online shopping?
The great rotation of consumption habits is well underway. And that’s not good for Asos Plc.
The online retailer recently announced a surprise profit warning, as well as the departure of chief executive Nick Beighton. The shares fell as much as 17%.
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The slowing sales growth of Asos is further proof of the outcome of the lockdown trade – meaning we are going back to the mall rather than always buying from our smartphone screens. But it also reflects how the prospects of rising costs of living and rising interest rates are starting to dampen consumers’ desire to spend.
Asos warned that sales in the year through August 2022 would increase by 10 to 15 percent, compared to the 18 percent reported by Bloomberg consensus analyst estimates. The group is forecasting underlying pre-tax profit of 110 million to 140 million pounds ($ 191 million), which is lower than analysts’ expectations of around 190 million pounds.
The gloomy outlook is due to a number of factors. First, online sales growth is stagnating as stores reopen, with September figures looking particularly weak. Asos expects its revenue to grow by an average to single digit percentage in the first half of its current fiscal year. That’s less than half the rate of expansion in the last quarter of fiscal 2021.
Second, higher expenses, such as increased transportation costs due to supply chain issues and customers returning their purchases, are also hurting the business. Returns can reach 50% for women’s clothing. These were depressed during the pandemic but are on the rise again. Nobody cares if the sweatpants are a little flared; not so much a tight dress.
For Asos, that means losing a profit of £ 67.3million this year. Add to that the competition from Chinese group SHEIN Group Ltd, whose technology and supply chains make the current pace of fashion frosty fast, and it’s not hard to see why Asos is seeing lower profits and why. outgoing president Adam Crozier felt a change at the top was needed.
Meanwhile, the return to schools and offices also appears to be weighing on digital retail. More spending is on transportation and lunch, not to mention entertainment. (After the price of seeing “No Time to Die” at the movies and a few drinks, there is less leftover for that tweed suit or the Mac eyeshadow palette.) Asos customers in their 20s have a lot more of ways to spend their money than they had in 2020, when online stores were the main way to shop.
But other concerns can have the biggest impact on the company’s earnings outlook. Headlines warning of inflation and rising food and fuel prices seem to frighten consumers. Another concern is higher borrowing costs as central banks consider raising rates.
In September, the BRC-KPMG Retail Sales Monitor recorded the slowest growth in total sales compared to the period the previous year since January, when the UK was on lockdown. Meanwhile, PwC found that consumer confidence in the strength of their disposable income was at an all-time low this year.
Companies have factored in the price increases to pass on the additional costs of increasing the supply chain to customers. But the erosion of consumer sentiment compromises that ability and puts more pressure on profit margins.
So far, wage growth has kept pace with inflation. Asos is also hoping to receive a boost from its Millennials and Gen Z customers who will be attending events and returning on vacation. But if inflation exceeds earnings – as it did the last time prices rose significantly a decade ago – young fans of the company will have less money to buy what they have. need, not to mention the new fashions they want.
Online shopping has exploded during the pandemic. We’re about to see how far it goes. This is a concern for Asos and the rest of the consumer sector.
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