Options are limited for ASOS in bid to reverse poor financial results following poor end to 2018.
The share price plunged 40% in response after the markets closed last night; in the last four weeks the value has dropped 51%.
ASOS revealed a significant slowdown in sales over the period, and November was a particularly hard month. The recent trading update reveals total retail sales growth of 13% and gross margins down by 1.6%. Sales in the UK and EU – ASOS’s two largest markets – were up 19% and 18% respectively, with a worrying 3% decline in rest-of-world sales.
In response the company has had to revise expectations for the rest of the year. Sales growth is now expected to be around 15%, compared to previous expectations of 20-25%. Crucially, margins declined by 1.5%.
The slowdown is particularly concerning for the company because physical retail stores have blamed purely online companies such as ASOS for their decline. Now ASOS is experiencing difficulties, the pains of the high-street may now have spread to online traders. However, the options open to the company are limited.
ASOS blames the economy, but it can act to minimise the damage if slowdown persists
ASOS points to the current climate in UK retail which forced the company to increase its promotional activity, increasing discounting and clearance sales. The millennial fashion market has too many companies operating in it, which is leaving all players exposed to downward pressure on prices.
One option is consolidation. ASOS is one of the larger and more recognized companies in its market and merging with a smaller player would boost its market share and help it better weather the storm. However, such a course would only be suitable if the bad November turns into a bad 2019.
The company should take more advantage of social media. Many fashion brands are taking to Instagram to engage in paid promotion with social media superstars with millions of followers. While ASOS is engaging in this to some degree, many other companies are doing a better job and ASOS is becoming less relevant.
ASOS results reflect wider retail trends for leading players
It’s not just ASOS that has suffered in recent months. Most of the British retail sector has suffered through a much weaker-than-expected post-Summer trading period – usually an important time transitioning between summer and winter ranges.
News broke this morning that Laura Ashley is expecting to close 40 stores across the UK. The announcement follows reports in October that around 50 of Debenhams stores were facing closure. Sports Direct owner and Debenhams shareholder Mike Ashley recently described November in a letter to Debenhams management as “the worst November for retailers in living memory”.
Many problems stem from failing to get consumers in to stores. British Retail Consortium (BRC) data showed footfall declined in the last week of November, and the month as a whole, by 4.5% and 3.2% respectively, the worst performance since 2009.