We’re experiencing the great reset for online retailers. After two years of joy during the pandemic thanks to the accelerated shift from physical to digital channels, growth rates across large parts of the retail sector are now falling short of expectations.
Demand is weakening, it is costing a lot more to run these types of businesses, and supply chain issues continue to cause a headache.
“Boohoo has followed in Amazon’s shoes by effectively saying growth is more challenging to achieve. Its margins are falling, customers are being fickle with their purchases and sending more items back, and delivery delays are making its overseas operations less efficient,” said AJ Bell’s Russ Mould.
“Against this backdrop we now have a more cost-conscious consumer who is watching every penny, meaning purchases are now more considered.
“Historically Boohoo benefited from its low-price points meaning customers were happy to keep hitting the ‘buy’ button as the cost of a dress or a top wasn’t too demanding. Now, they need to check if there is enough money in their bank account to pay the bills and buy the weekly shopping before thinking about any treats from clothing or other types of retailer selling ‘nice to have’ products.
“Boohoo seems to have a plan to cope with the current pressures and it remains confident about the future. However, some things are out of its control, principally demand. In this environment expect to see a price war as retailers go for sales volume over profit. That implies further margin compression which is not a good situation to be in.
“Most companies are trying to push up prices, not cut them, so Boohoo could be facing one of its worst patches in the company’s history if we do see a price war environment and further pressure on consumer finances.”