As store shutters slammed down during lockdowns, some wrote off the likelihood of a bricks-and-mortar recovery. Now the same gloom has descended over pureplays. It was proven wrong then and it will be proved wrong now.

Updates from online retailers have been a litany of woe, in contrast to their omnichannel rivals. 

After the online boom of the pandemic period, pureplay sales were frequently down over the Christmas trading period and earnings expectations are muted or have been scaled back.

That has happened across categories. THG reported record annual sales but profits will come in well below what was previously anticipated. The health and beauty retailer, whose trading brands include Lookfantastic and Myprotein, revealed it has shed 2,000 staff through “managed attrition” as it refocuses on its core businesses.

“The delivery market turmoil will not last forever and that aspect of pureplays’ appeal will eventually be restored”

Grocer Ocado Retail’s sales were flat in the most recent quarter. While customer numbers and average orders per week were up, basket values were down and people shopped less frequently “compared with the pandemic period and as customers respond to the cost-of-living crisis”.

Fashion specialist Asos suffered a 3% sales decline in the Christmas quarter as it focused on profitability in challenging circumstances, while at counterpart Boohoo, sales slid 11%.  

The golden children of the Covid era now look like beached whales as they increasingly turn their attention to the nitty-gritty of executional improvement such as tighter inventory and cost control. 

In the longer term, though, they may be more like Thor the walrus, who washed up unexpectedly on the Yorkshire coast last month, and ultimately head successfully back out to calmer waters.

This too shall pass

Some, although not all, of the factors that have hit pureplays were temporary. The Royal Mail strike, for instance, and wider pressure on delivery services had an impact. 

Asos said “disruption in the delivery market… resulted in earlier cut-off dates for Christmas and New Year deliveries”. That prompted consumers to buy from retailers with bricks-and-mortar stores offering services such as click and collect.

However, the delivery market turmoil will not last forever and that aspect of pureplays’ appeal will eventually be restored. The imposition of charges for returns by some will also have dissuaded consumers but, again, as that becomes standard, it will become accepted normality.

Setting aside some of the immediate problems of the moment, pureplays are generally more resonant than they were before the pandemic. For all its travails, Boohoo’s total revenues, for example, were still up 35% versus 2020. Ocado noted that “the channel’s share of the market appears to be stabilising around 11% – versus around 6% pre-Covid – and is expected to grow next year, according to IGD”.

The pureplays have some levers to pull too, such as by offering their platforms and services to third parties – as has formidable omnichannel competitor Next. THG is repositioning its Ingenuity division to “focus on larger, higher-revenue and higher-margin clients with high-quality recurring revenues”. 

“While investors may be frustrated by the recent rout of the pureplays, they cannot be written off yet, despite their Christmas shocker”

Asos has built its Partner Fulfils business from two to 23 brands in the UK and Europe, and Ocado’s Smart Platform is being adopted by retailers overseas. 

There is also an opportunity, which Asos has begun piloting with Nordstrom, to sell own-brand through bricks-and-mortar partners – pureplay goes multichannel.

But the biggest point to note is that as with their omnichannel counterparts, the macro conditions will improve. The cost-of-living crisis will eventually abate; retailers across the board are already looking forward to lower levels of cost price inflation and easing conditions.

Boohoo said: “With recent positive signs in global supply chains, we expect to see some easing of disruption along with some relief to freight rates… it is expected that overall cost growth begins to moderate as the year progresses along with an improved cost inflation outlook exiting the year ahead.”

Ocado maintained: “The improving trajectory forecast for the second half is expected to underpin a strong recovery in 2024.”

While investors may be frustrated by the recent rout of the pureplays, they cannot be written off yet, despite their Christmas shocker. 

The year to come may bring more retail casualties – and some online groups will have to adapt their long-term models if concerns about the ethical and environmental impact of fast fashion persist – but those with sufficient financial clout and executional prowess will bounce back, just like their bricks-and-mortar peers