When stock market darling and fast-fashion powerhouse Asos issues a shock profit warning just before Christmas, you know times are bad.
The etailer, at which sales climbed 14% in the three months to November 30, reported today that it had suffered “a significant deterioration in the important trading month of November”. Its shares have plunged almost 40%.
Asos said: “Whilst trading in September and October was broadly in line with our expectations, November, a very material month for us from both a sales and cash margin perspective, was significantly behind expectations.
“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.”
Asos’ performance is particularly worrying because it has been a star performer. But it is just one of a number of normally robust retailers to flag concerns over trading in the golden quarter.
Primark cautioned at the start of this month that November had been “challenging”, which sounded a klaxon for retail more widely. Primark has been one of the bricks-and-mortar fashion retailers that has conspicuously flourished in recent years.
Last week, Superdry issued a profit warning, which it blamed on weak consumer confidence, a warm autumn and its own lack of innovation, and retail commentator of the moment Mike Ashley described November as the “worst on record, unbelievably bad”.
Ashley added that he “couldn’t have predicted it” and that such poor trading conditions so close to Christmas would “smash retailers to pieces”. His varied portfolio of businesses, which runs the gamut from Sports Direct to Agent Provocateur and Flannels via House of Fraser, perhaps gives him a unique window on to how consumers are behaving.
And industry bellwether John Lewis has released dismal fashion sales over the past month, with no respite aside from a healthy Black Friday performance.
So, if businesses such as Primark and Asos are finding life hard, what hope is there for the rest of the fashion sector?
Fashion retailers are divided over what exactly is stopping customers shopping.
While Bonmarché boss Helen Connolly, who warned on profits last week, placed the blame squarely at the feet of Brexit, others such as Debenhams chair Sir Ian Cheshire have veered away from blaming Brexit entirely.
One fashion retail chief executive admitted that “November was a tougher month compared with good months before” and blamed the mild weather rather than political or economic uncertainty.
“Fashion retailers often blame the weather for their woes and it is clear that this period stands out from the norm”
The weather should not be underestimated as it is a common thread through many negative updates, but fashion retailers often blame the weather for their woes and it is clear that this period stands out from the norm.
He did not believe that Brexit uncertainty was affecting trading. He said: “My instinct is it is not. I don’t think the average person doesn’t buy a coat because of Brexit.”
By contrast, Asos’ Nick Beighton took exception to the usual rhetoric that teenage and 20-something customers don’t care about the wider economic outlook.
“Based on my evidence of 20-somethings within our ecosystem, I would say that doesn’t hold true,” he said. “In the UK, 20-somethings are very bothered by economic uncertainty and political wrangling.”
Asos’ French and German business were particularly badly affected over the period, and Beighton said the sociopolitical situation in both those countries should shoulder much of the blame.
“Certainly, economic and political uncertainty have had a big effect in the UK, but I think the economic aspects are wider than the UK,” he said.
“France and Germany have been particularly weak. We started to see weakness in Germany at the back end of last year… it’s difficult to conclude fully but French and German consumers are having a tough time.”
He added that younger consumers’ disposable income was “very challenged” despite wages starting to increase. “Disposable income is probably still below what it was 10 years ago,” he explained.
The biggest trend witnessed at Asos, he said, was customers trading down for cheaper alternatives. That supports the theory that consumers just don’t have the money in their pockets to spend on discretionary purchases.
Long unpopular with retailers because of the dangers of potentially reducing margins at such a crucial time, Black Friday was criticised by a number of fashion chief executives today.
“Black Friday this year was poor,” says Fat Face boss Anthony Thompson. “Customers have finally got exhausted with all of that. They want good deals and the best price but they’re given discounts so much during the year that the only way to get their attention on Black Friday was to give the stuff away.
“Very few people who have historically been supportive of Black Friday have been vocal this year”
Anthony Thompson, Fat Face
“If you’re discounting at the levels that some were discounting around Black Friday, you can’t be making much money out of it. Very few people who have historically been supportive of Black Friday have been vocal this year.”
Asos, which has always been a key proponent of Black Friday, today admitted that the discounting event had not been beneficial.
”The benefit of Black Friday is that it is a very rich moment to attract customers, but clearly the level of discounting now in place on Black Friday makes [our approach] worth reconsidering,” Beighton said.
The etailer is one of the more active participants in Black Friday, giving customers 20% off everything. But Beighton said that, compared to some other players, its discount levels had not stood out to customers.
“Asos’ profit warning is a reminder of the harmful effects of Black Friday,” concurs analyst Natalie Berg. “It erodes both margins and consumer trust, particularly when retailers go down the blanket discount route – an overwhelming number of fashion retailers including Asos did this year.
“And given the sheer amount of discounting that is happening on the high street at present it’s clear that shoppers are reluctant to pay full price after Black Friday ends. Today’s announcement is a reminder that no one is immune to the challenges facing the retail sector.”
One retailer that fared well over Black Friday was Asos’ direct competitor Boohoo, which discounted at a deeper level and sells cheaper own-brand product.
It said today that its trading performance “remains strong, with record Black Friday sales across the group” and it “continues to trade comfortably in line with market expectations”.
Alright on the night?
Many retailers are hoping for a last-minute rush because of where December payday and Christmas Day fall and see the weekend as prime shopping time.
“This weekend will be very big,” one fashion retailer said. “If the next week continues as most of the last 25 have been [for us], we’ll be fine.”
“It is going to be a bloodbath out there next year”
Fashion retail chief executive
However, GlobalData group research director Maureen Hinton was not convinced. “Things are still tough in December, particularly from a fashion point of view,” she says. “It’s less likely that fashion products are bought as presents. The imperative to buy fashion in December is far less – people will only buy because it’s discounted.”
One fashion retail chief executive agreed with Hinton, reasoning: “The customer is now expecting promotions and deeper discounts so retailers need to get innovative in how they navigate this.”
He added: “It is going to be a bloodbath out there next year.”
Whether retailers benefit from an alright-on-the-night Christmas spending spree or not, the bigger test may be next year. While middle-market retailers have struggled in recent years, value and youth-oriented retailers could be next to join the unhappy crowd.