When Asos sneezes, you can be pretty certain that retail has caught a rather nasty cold.
In fact, some retailers have already taken to their beds after chill November trading conditions, and it’s given the City the shivers.
Asos, the poster child of contemporary retail, was supposed to be immune to the woes afflicting some more traditional businesses, so the shock of a profit warning was seismic and screens turned red as retail stocks fell in the wake.
In the present climate, many retailers would be over the moon with sales growth of 14%, as Asos reported. But when those sales come at the cost of a likely shift in full-year earnings from £122m to something more like £56m, even double-digit growth loses its lustre.
“With the benefit of hindsight, reductions of 20% across the board were probably not deep enough”
What are the takeaways from Asos’ tailspin? First, being online is in itself no guarantee of success.
There is no doubt shopping habits have radically changed, and that transformation will undoubtedly continue, but pureplays can be as vulnerable as bricks-and-mortar chains to tactical errors or wider consumer shifts.
There was a bit of both at play at Asos.
November was a tough month for many in fashion, from Primark to Superdry. On top of that was Black Friday, which seems to be an ever-more extended period of discounting that savvy shoppers are playing to their advantage.
With the benefit of hindsight, said Asos chief executive Nick Beighton, reductions of 20% across the board were probably not deep enough as others such as Boohoo trumpeted discounts of 60%.
Such deep discounting will strike terror into the hearts of many retailers, indicative as they are of how hard-nosed consumers are becoming about what constitutes a bargain.
While it works for some, Black Friday is surely due a rethink. The refusal by retailers such as Marks & Spencer to participate, even though they cannot afford to lose sales to rivals, looks sensible over the longer term. Surely more retailers should follow suit.
Confidence and the continent
However, perhaps a bigger factor than Black Friday, and harder to read, is the consumer mood.
Beighton flagged a highly unusual feature of trading – lower average selling prices were not reflected, as might be expected, by more units per basket.
That seems to be “playing more to fragile consumer confidence”, he maintained. “I’ve not seen these trends in the best part of nine years.”
While the automatic conclusion might be that Brexit, unpopular among many of the young people who shop with Asos, has cast a pall over trading, there is more to it than that.
“International presence does not always counterbalance ups and downs of particular markets”
It was in France and Germany, which between them account for about 60% of Asos’ EU sales, where performance was among the most challenging.
Both countries have their own problems – the gilets jaunes uprising in France, for instance, has been precipitated by high unemployment and high living costs, among other factors.
It is a reminder that international presence does not always counterbalance ups and downs of particular markets and while young people internationally may share aspirations, identification of which was key to Asos’ success, they also have more than the latest celebrity fashions on their minds.
In December, there has been a slight uptick in Asos’ trading – “marginal” was Beighton’s term, and he didn’t seem to be expecting a radical reversal of fortunes in the immediate future.
Online or offline, or a mixture of both, life has not been easy for many retailers this year and there seems little prospect of change in the foreseeable future.
In these torrid times, retailers need to be better than ever at reading and responding to customer needs and wants so they can control as much as possible what lies within their gift – because they will have to confront plenty that is not in the year to come.