While Asos’ profits and sales surged as it navigated the pandemic in recent months, the retailer has warned that the next few months may not be quite so rosy

  • Asos boss Nick Beighton says “we were anticipating further lockdown restrictions” as it prepared for the festive season
  • “We are very mindful that the financial impact of Covid-19 hasn’t yet filtered through to the 20-something audience,” Beighton says
  • Key Brexit risks are increased duties on products crossing borders, disruption at ports and consumer sentiment

“The pandemic probably brought 10 years of digital disruption into the space of just a few months,” says Asos chief executive Nick Beighton as he assesses the fashion etailer’s last financial year.

Unlike much of the fashion sector, Asos has emerged from the pandemic in a strong position. Profits soared 329% to £142m in the year to August 31, when group revenue was up 19% to £3.26bn.

The number of active Asos customers also jumped by 3.1 million to 23.4 million as more shoppers turned online during the coronavirus outbreak.

Asos also managed to pivot its product mix in the second half to reflect demand for popular lockdown categories such as activewear and face and body, but despite the company’s success, Beighton and chief financial officer Mat Dunn struck a cautious tone.

Like other retailers, Asos is uncertain about what consumer demand may look like in the lead-up to Christmas as a raft of disruptive factors come into play.

Disruption of life and going out

Coronavirus restrictions such as the rule of six have caused havoc across the hospitality and retail industries as parties and celebrations have been cancelled or downsized.

Nick Beighton

Nick Beighton says Asos is worried about rising unemployment among 16-24-year-olds

Following the latest three-tier measures in the UK, it seems unlikely that there will be much relaxation of the rules this golden quarter – if anything they may become more draconian – and that means fewer opportunities for people to go out, so less demand for products such as party clothes that would typically be in demand among Asos’ young customer base.

Asos has built up a reputation for its going-out gear and has factored the change in behaviour into its expectations for the coming months.

“In terms of the way we’ve set our buy plan up, we were anticipating further lockdown restrictions,” says Beighton.

“We detuned party gear and going-out gear, particularly dresses and shirts. 

“We’ve dialled up to offer more width in casual wear, sportswear and beauty products, as well as extending our core ranges.”

While Asos is concerned about “how 20-somethings’ lives will be disrupted as we run into Christmas” and its impact on its traditional bestselling partywear, it recognises that continued demand for lockdown categories such as loungewear could also work in their favour if they increase the range on offer.

With different rules applied to different areas depending on the number of cases, Asos may see a sporadic pattern of demand for either occasionwear where hospitality venues remain open or loungewear where they are forced to close, which is difficult to plan for.

Unemployment rates

Fears of increased joblessness are rising as the furlough scheme comes to an end and more redundancies are widely expected, despite the new job support scheme.

Research from McKinsey found young people and those in part-time positions are most likely to lose their jobs in the coming months and latest figures from the Office for National Statistics showed that between June and August, 60% of people who have become unemployed are aged 16-24.  

Beighton says: “One of the things we are very mindful of is that the financial impact of Covid-19 hasn’t yet filtered through to the 20-something audience in terms of potential unemployment. We’re very worried about how it might fall on 20-somethings globally.

“During lockdown, lots of those people were supported by the equivalent of furlough schemes around the world, but we’re worried about how it might fall now and affect disposable income.”

To combat the potential recessionary impacts on its customers, Asos is introducing a new own-label range called AsYou.

The collection, priced between £8 and £28, is aimed at plugging the gap in Asos’ offer to appeal to a wider audience including those who may not be able to afford its more expensive pieces.

Cash-strapped shoppers and the tough environment mean the coming months are likely to be highly promotional in retail, which can also affect performance. Beighton also explains that Asos remains flexible in its approach to promotions and will follow the industry in its promotional calendar if it has to if the golden quarter and Black Friday season sees unprecedented Sales.

Product shortages

The global disruption caused by the pandemic has piled pressure on fashion supply chains, adding another headache. 

“If you think right back to the start of the pandemic out of China, the first impact most retailers were feeling was the reduction in the supply of products coming out of the region,” Beighton says.

“As the virus spread and became a more global pandemic, it then meant that manufacturing in various parts of the country and world just didn’t happen. 

“In some areas, that meant up to three months of no production.”

Asos has estimated that based on current World Trade Organisation tariffs, it would take a £25m hit next year with a no-deal Brexit

The result was that a lot of stock simply was not made and supply chains have not managed to make up for this further down the line. 

He also explains that many suppliers have been struggling to keep up with the demand for products such as loungewear and sportswear, which have been popular in the lockdown months, posing an issue if the spike in popularity continues.

Asos does not expect the supply chain issues, which impact the entire sector, to be rectified until spring/summer 2021 as items such as jogging bottoms remain in short supply.

“Ironically, the current pandemic means we are short on product,” Beighton observes. “We’ve factored this into our planning and are chasing the intake, it’s an industry-wide issue,” he concludes.

Brexit clouds

The UK is scheduled to leave the EU on December 31, which could again cause problems for Asos and the retail industry while there is no trade deal in place. 

Dunn says the key risks for Asos regarding Brexit are increased duties on products crossing borders in and out of the UK, disruption at ports and any impact on consumer sentiment, which could be exacerbated by the continued impacts of the pandemic. 

Dunn has estimated that based on current World Trade Organisation tariffs, Asos would take a £25m hit next year with a no-deal Brexit. 

“Clearly there are other material uncertainties in terms of both supply and demand but it is not possible at this stage to provide colour or clarity on these,” he explains.

To mitigate the potential impacts of Brexit, Asos has looked to remove its reliance on key UK entry points and has reviewed its supply footprint to ensure it “minimises product flows which could incur incremental duty”, but the majority of Brexit headwinds cannot be predicted yet.

With the continued impacts of the pandemic on both supply and demand in the lead up to Christmas, as well as the potential for a Brexit impact, Asos is right not to take anything for granted about the next financial year – even though its performance so far has been strong.