Whatever happened to the darlings of fast fashion, Boohoo.com and Asos?
The U.K. powerhouses of Gen Z online fashion retailing could do no wrong (financially at least) once upon a time but over the past few days, storm clouds are not only brewing but have dumped a year’s worth of precipitation on both.
Intriguingly, that has caused one to lean towards the U.S. and the other to lean away.
Blame it on China’s Shein eating their lunch, pre-owned fashion marketplaces like Depop and Vinted becoming increasingly influential, or customers slipping off the sweatpants and heading back to Main Street.
But whatever the problem is, this week Boohoo.com reported that it had dived almost $113 million into the red after its annual sales fell and it struggled to contend with increased levels of returned merchandise and a slump in U.S. demand.
The online fast fashion business said sales fell 11% to $2.2 billion in the year to 28 February, with a 9% drop domestically, with a warning of a likely further fall by as much as 5% in the year ahead amid the cost of living squeeze.
Performance in the U.S. was especially poor, with sales slumping 24% over the year (stripping out currency movements), as delivery times were held up — it takes 10 days for products to ship generally — and the cost of airfreighting merchandise rose.
Boohoo Losses Widen
Boohoo said it had made a pre-tax loss of $113 million, compared with a profit of $114.9 million a year earlier. The number of shoppers visiting its websites fell 10% to 18 million over the year, though that was still up 29% over three years as it gained customers during the pandemic.
However, Boohoo did say that underlying profits would rise in the year ahead after cost-cutting and an ease off in costs, while it was also hit by one-off costs this year as it increased automation at its Sheffield warehouse, laid off some staff and invested in a U.S. warehouse.
Ppening late summer in Elizabethtown, Pa. it will mean eventually up to 95% of purchases made in the U.S. will be serviced domestically and not from the U.K., with Gen Z brand PrettyLittleThing slated to be the first to go live.
The full apparel and brand mix from Boohoo should be available via the U.S. warehouse from summer 2024.
Boohoo chief executive, John Lyttle, called that a “gamechanger and insisted: “Over the last three years, the group has achieved significant market share gains. Looking ahead, we are investing for the future growth of this business with automation, local fulfilment capacity in the U.S. and building global brand awareness.”
Asos Drops Back From U.S.
Asos revealed last week that it had fallen nearly $363 million into the red as sales slumped in what the online fashion retailer called a “challenging trading backdrop”, as consumers went back to stores and reduced spending on non-essentials.
Sales fell by 8%, 10% in the U.K., in the six months to 28 February, which was significantly worse than the 3% forecast by analysts. The company said it had deliberately shifted away from unprofitable lines and been hit by weak consumer demand, plus the December postal strikes across Britain.
The pre-tax loss compared with a $20 million deficit a year before and came after writing down more than $124.7 million on excess stock, as Asos settled on a narrower assortment that it can update faster.
So far extensive investment in overseas markets has failed to produce strong results and the group has reallocated resources away from the U.S. However, the U.S. likely holds the key to the group’s future growth, meaning short term decisions may impact longer term prosperity.
Asos warned that sales had continued to slide through March and April and expected them to fall by at least 10% for the year, limiting underlying profits to no more than $75 million.
Chief executive José Antonio Ramos Calamonte, who took the reins last summer, cited half the fall in sales as down to the company’s own actions, such as limiting discounting and reducing marketing, with the other half down to changing consumer behaviour.
Meantime, U.K. sportswear to department store chain Frasers Group upped its stake in Asos to 7.4% (from over 5%) today.