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ASOS isn't about online or offline, it's about bad retailing

19th Dec 2018
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Exterior Of Shop With Closing Down Notice In Window

The travails of the High Street is well documented: Toys R Us, Mothercare, Carpetright, House of Fraser, to name just a few. But that’s brick-and-mortar, isn’t it? Online retail, with its lower overheads and convenience, was where the consumer now spent their hard earned shekels.

At least, that was the prevailing logic until recently. ASOS, once an online retail darling, delivered an unexpected update on its sales performance for November, and it was not good.
In its update, ASOS noted that while “trading in September and October was broadly in line with our expectations”, November was significantly behind expectations”.
The statement added, “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.”
Shares in Asos plummeted by almost 38%, wiping more than £1bn from the value of the company on the stock market.
Weaker consumer confidence means tough times for retailers, with many brands locked in a discounting death spiral hoping to reap ever dwindling disposable incomes. In a statement to investors, ASOS’s chief Nick Beighton directly attributed the retailer’s problems “an unprecedented level of discounting ... across the board.”
Beighton said he had been “astonished at the level of promotions and discounting, especially around Black Friday”, and predicted that heavy discounting would continue in the coming months.
ASOS’s trading update stated the “increased discounting, coupled with the unseasonably warm weather during the last three months” had reduced its average selling price (down 6%), a decline that wasn’t compensated by a “higher units per basket”.
“Consequently, average basket value is now lower year on year. This has driven higher variable costs through both our distribution and warehouse cost lines. All other operating cost trends remain largely in line with expectations. We remain in a period of heavy transition costs which this year remain budgeted at a peak level of c.£30m. This drag on our profitability will decrease during the second half of the current financial year.”
And it’s not just ASOS feeling the pinch either. Mike Ashley, founder of Sports Direct and no shrinking violet, described November as  “the worst on record, unbelievably bad”.
Retail chain Next and Marks & Spencer also posted declines, with shares in both companies falling 4.6%, as analysts warned that the squeeze on household finances since the EU referendum was taking its toll. Shares in Dunelm, the home furnishings retailer, fell nearly 11%, while online grocer Ocado shed 4.4%.

Forget online, offline -- it’s just bad retailing

According to Richard Hyman, an independent retail analyst who has worked in the industry for over three decades, the narrative over ASOS and online retail is the wrong one. 
“Retailing is retailing,” Hyman told AccountingWEB. “It’s been a complete misconception to hold online retail up as the holy grail.
“Being online or selling fishing rods, it’s not about being in the right channel. It’s about being a good retailer, and there aren’t many good retailers.”
According to Hyman, retailing has developed over generations in a growth economy, and the skills required to prosper in a growth economy is different to a sector that’s hugely over-supplied. 
“What’s happened, in the historical context of a growing economy, is retailers have chased growth. Chasing growth meant opening stores, bigger and bigger stores.
“Where we are today, most retailers have too many stores, too big, too many SKUs, they don’t understand what choice means to their core customers, they’ve sacrificed the engagement with their core customers in chasing their peripheral customers.”
Add in a worsening consumer economy, the picture darkens. Margins are tight, Hyman said, and it only takes a small shift in the spending behaviour of a relatively small proportion of people to blow the trading economics of a business out of the water.
“I can predict with total certainty that next year will be worse. The writing is on the wall. We haven’t got a clue about anything: will we still be in the EU, won’t we. This level of uncertainty is ruinous. It encourages everybody - consumers, vendors, suppliers - to think in a very short-term way. It stops investment, employing people, taking leases, in R&D. There are a few retailers who are now trading through their last Christmas.”

Replies (5)

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By Silicone
20th Dec 2018 11:09

I can't help but agree that national retailers are creating a race to the bottom. Free postage and free returns and constant discounting. How can that be sustainable? Certainly, it is destroying independent retailers that don't have deep pockets. You may say well that is basic economics and market forces will drive out under performance. Yes true. But we have to question whether the tactics of national retailers is actually evidence of doing things well or simply desperate tactics (a huge gamble if you like) to survive. We also have to question whether this is good for society and our communities.

Thanks (3)
By AndrewV12
20th Dec 2018 12:04

Extract above
'The statement added, “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.”'

They always blame the economy or external forces never themselves. They all got carried away with the word sales, they must have known selling items for virtually what you have paid for them is a recipe for disaster, however November 2018 is only one month, an important month but only one month, all of a sudden it has become the benchmark, me thinks not.

I honestly believe the high street/retail park still holds all of the cards, whenever i want to purchase an item I always go there first, because i can see a product, touch it, review it in my mind, where the high street falls down i believe is on the range, they never have what you want, but on the net you can always find what you want, going forward there is talk of hybrid stores, you can have a look of whats in their store, but also whats on their website to hopefully plug any requirement gaps.

And just for the record the last fishing rod i purchased was on line.

Thanks (1)
By clairebear
20th Dec 2018 13:17

“Where we are today, most retailers ….. they don’t understand what choice means to their core customers, they’ve sacrificed the engagement with their core customers in chasing their peripheral customers.”

And here we have the key issue. Endless retailers chasing the "young" pound, coupled with thinking that they can consistently get away with selling cheap, poorly sized tat.
Couple that with the issue where customers are now dubious of when to purchase from these places in the run up to Christmas (or any time of year for that matter) because they don't know if the next week it'll have 50% slashed off it, and are we surprised in the slightest that (predominantly) clothing retailers are struggling?
There is far too much choice now for retailers to think that they can do this and retain customers.

Thanks (1)
By yapiio
01st Jan 2019 17:17

When I see a high street store promoting discounts or offers, I no longer see it as a genuine sale, but a way for retailers to dispose old stock or out-of-season clothes. I agree with Andrew's comment, the economic is often blamed for poor sales. If economic downturn or Brexit is to blame, how can we explain the fast growth of Gymshark and Boohoo? Should ASOS have a management shakeup to boost them to the next stage of growth?

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By Damian_Harrison
11th Feb 2020 02:57

I still think that online trading has more prospects. People spend too much time on computers now and online shopping has already become a classic. It is strange for me to observe the disgusting logistics of large retailers, but if you pay attention to newcomers to online trading, then here the indicators are excellent. I saw some great examples in the portfolio of this developer - It seems to me that small business better understands the level of modern demand and does everything so that customers are comfortable buying from them. I got this opinion.

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