Asos under pressure as Gen Z shoppers switch to Shein
When Asos broke onto the retail scene over two decades ago it revolutionised the way 20-something year olds shopped.
No longer did they have to rely on the limited pool of shops on their local high street, but had access to an endless catalogue of modern garments.
The business, which was first As Seen on Screen, wooed young customers with its copycat versions of clothes worn by noughties icons such as Cameron Diaz and Katie Price.
However, it appears the retailer has had its day in the sun. Sales in Asos were down by over a fifth in the first half of the year, as the business ramped up discounts in order to clear stock.
Asos, which is trying to get rid of old items before it moves to a new operating model next year, saw sales decline by 18 per cent in the six months to March.
José Antonio Ramos Calamonte, chief of the pure play online retailer said it is now the process of turning “stock into cash.”
Around £40m has been wiped off its market capitalisation in the past five months after the business warned on its profits at the tail end of 2023.
Shares are also down by nearly 55 per cent in the past year.
It is a sad state of affairs for the business which was once deemed the poster child for the future of retail.
Clive Black, analyst at Shore Capital, told Morning Wire Asos has come off the back of three “really hard years” and is facing increased competition from Far East rivals Shein and Temu.
He said: “[Shein and Temu] run off a different cost base. They run off different regulations and different compliance procedures and that’s a real challenge for the online apparel trade.”
Shein, the Chinese ultra-fast fashion retailer, has been disrupting Britain’s online shopping market ever since it skyrocketed in popularity during the pandemic.
The behemoth, which churns out around 10,000 new products a day, made $2bn (£1.58bn) in profit last year and is also reportedly eyeing a listing in either London or New York.
Its ability to sell trendy clothing and accessories at a very accessible price point has also won the hearts of many Gen Z shoppers who are finding their feet amid a global economic squeeze.
Black said Asos’s difficulty in resonating with shoppers is one of the reasons it has made it “hard to be optimistic [about the business] in the medium term”.
Asos is not the only online pureplay bruised by the rise of Chinese commerce brands.
Boohoo has also seen its sales shrink in recent months posting a 17 per cent decline in revenue during its most recent financial update.
Online shopping was hailed as an indestructible business model during Britain’s stop-and-start lockdowns, but recent figures have shown that consumers’ appetite for digital spending is waning.
According to the ONS, the proportion of sales made online fell from 26.8 per cent in December 2023 to 24.8 per cent in January 2024, growing to just 25.7 per cent in February.
Victoria Scholar, head of investment, at Interactive Investor, said: “While e-commerce retailers fared well during the pandemic when most people were stuck at home and bricks-and-mortar stores were closed, Asos has struggled with weak demand since amid pressures from the cost-of-living crisis and intense competition.”
March’s online penetration rate – the proportion of non-food items bought online- decreased to 36.6 per cent down from 36.8 per cent recorded in the exact same period the year before, the British Retail Consortium said.
Asos will announce its half-year results for the 26 weeks to 3 March 2024 next Wednesday.
Aarin Chiekrie, equity analyst, Hargreaves Lansdown, added: “Despite the operational improvements, there are structural challenges to navigate [at Asos].
“Customer numbers are likely to show continued signs of weakness when the company reports half-year results next week. Competition in its domestic market has heated up, with newcomer Temu and more established threats like Next and Marks and Spencer all fighting for sales.”
He continued: “This puts extra pressure on successful expansion into overseas markets like the US, which doesn’t come cheap. And any compromising on what gives Asos an advantage in service, like convenient delivery and returns, could impact long-term growth.
“The depressed valuation isn’t pricing much in for these potential growth opportunities, meaning the market’s not sure that Asos can deliver.”