Retail woes go online as discounting hits Asos

Retail woes go online as discounting hits Asos

Europe’s retail crisis is spreading from bricks-and-mortar stores to e-commerce as Asos plunged the most in over four years after warning that Christmas shopping has got off to a disastrous start.

The gloomy update from a UK online retailer that competes with Amazon shows that retail weakness is widespread. Asos fell around 40% in London, wiping more than £1.4bn (€1.55bn) off the market value.

The news dragged down other online retailers like Boohoo which fell 13% and Zalando, which fell by over 13%, as well as store operators like Marks & Spencer Group and Next.

M&S and Next shares fell by 5% and 6% at one stage.

“This goes against the script,” said Stephen Lienert, a credit analyst at Jefferies.

“It was supposed to be bricks and mortar that’s dying and online is the future, but that headline gets ripped up today,” he said.

Asos cut its full-year sales-growth guidance on a “significant deterioration” in November. The company cited a high level of discounting, which comes as the continuing Brexit saga undermines consumer confidence in the UK while French shopping districts are suffering from sometimes violent protests by the Yellow Vests.

Last week, Sports Direct International chief executive Mike Ashley said sales were unbelievably bad in November, sending the shares off a cliff.

The latest news shows that retailers can’t rely on online operations to make up for a decline in stores this year. If December doesn’t improve, the new year may bring more profit warnings, or worse, to the sector.

Retailers such as Debenhams and M&S, which are in the midst of turnaround plans, may be particularly vulnerable.

The UK’s streets have already been decimated by a series of collapses, including the insolvency of department-store chain House of Fraser, which Ashley rescued earlier this year.

Investors in retail debt are also feeling the pain. Debenhams’ £200m of bonds due July 2021 have plummeted 35p on the pound since the start of the year to 64p, the lowest since the notes were sold in 2014.

Asos cut its outlook for full-year growth to about 15%, from a previous range of 20% to 25%.

It’s a sharp turnabout for a company that had grown rapidly, its market value at one point rivaling M&S before plunging to £2.1bn yesterday. The warning dragged down H&M.

Last week, Inditex of Spain, which runs the Zara chain, pointed out the high level of discounting in the clothing retail industry and said it’s trying to resist lowering prices.

That led to sales growth below its target at the start of the second half. Germany’s Zalando plunged 14% while London-listed Boohoo fell 13%.

After the warning from Asos, Boohoo confirmed its performance is strong and within market expectations. Zalando said fourth-quarter sales are good and is optimistic it can meet the outlook targets.

Bloomberg

More on this topic

Questions for Quiz as fashion chain sinks to a lossQuestions for Quiz as fashion chain sinks to a loss

New regulations for gift vouchers to come into effect ahead of ChristmasNew regulations for gift vouchers to come into effect ahead of Christmas

Dublin Chamber says increase in commercial rates 'another blow' for city centre businessesDublin Chamber says increase in commercial rates "another blow" for city centre businesses

Luxury giant LVMH seals deal to acquire Tiffany & CoLuxury giant LVMH seals deal to acquire Tiffany & Co

More in this Section

Tech firm Horizon8 picks Cork as Europe HQTech firm Horizon8 picks Cork as Europe HQ

Abbey eyes more Irish work as profits fallAbbey eyes more Irish work as profits fall

Providence shares see bounce on Tony O’Reilly exitProvidence shares see bounce on Tony O’Reilly exit

Legislation to test self-driving cars on Irish roads approvedLegislation to test self-driving cars on Irish roads approved


Lifestyle

This Christmas remember that there is no such thing as cheap food.Buy local: Use your LOAF

As we wait, eager and giddy, a collective shudder of agitated ardor ripples through the theatre, like a Late, Late Toyshow audience when they KNOW Ryan’s going to give them another €150 voucher. Suddenly, a voice booms from the stage. Everyone erupts, whooping and cheering. And that was just for the safety announcement.Everyman's outstanding Jack and the Beanstalk ticks all panto boxes

Every band needs a Bez. In fact, there’s a case to be made that every workplace in the country could do with the Happy Mondays’ vibes man. Somebody to jump up with a pair of maracas and shake up the energy when things begin to flag.Happy Mondays create cheery Tuesday in Cork gig

More From The Irish Examiner