There’s bad news and really bad news and given revelations about ASOS’ credit insurance and amended lending terms had hinted at something more existential, today’s update while sobering wasn’t apocalyptic.
Yes, the company has posted a loss, but sales have held up reasonably well all things considered. The problem for ASOS is the current crisis has revealed flaws in its business model, including some thin operating margins.
AJ Bell’s Russ Mould said: “The online retail sector didn’t have to worry as much about the costly exercise of returns during the pandemic as people were reluctant to head to a busy post office to send a parcel back. At the same time, many weren’t watching the pennies as they are now and were perhaps happy to stick with a jumper that didn’t fit quite right.
“That’s no longer the case and the outlook for sales is weak as its youthful target audience, or their parents, face significant pressures on their disposable income.
“Crucially, recently appointed CEO José Antonio Ramos Calamonte has demonstrated he is taking the challenges in front of the company seriously.
“Some of the things he is looking at, like stock management, are basics of the retail industry and really things ASOS should have already had under control. When times were good it could perhaps afford to neglect these issues. Not anymore. Costs are being cut and ASOS may have to follow the lead of other retailers and start charging for returns.
“ASOS’s current predicament is only adding to longer-term concerns about the whole fast fashion model and whether, in an age when the focus is on sustainability and where sourcing cheap materials and labour is a much bigger challenge, it has as solid a future as previously thought.”
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