LONDON — Is Britain’s fast-fashion bubble about to burst?
After watching sales soar during — and after — lockdown, fast-fashion retailer Asos saw its shares plunge 14 percent Monday as it warned profit margins will be squeezed and sales forecasts bogged down by Brexit-related duty costs and broader supply chain issues linked to the aftermath of COVID-19.
The company said Monday full-year adjusted profit before taxes in fiscal 2022 is expected to be in the range of 110 million pounds to 140 million pounds, reflecting a variety of factors, including “notable cost headwinds, incremental inbound freight costs; Brexit duty annualization, outbound delivery costs and labor cost inflation.”
Fast fashion isn’t the only sector feeling the heat, with supply chain woes hitting nearly every industrial and consumer sector due to post-COVID blockages at ports. The U.K. in particular is also seeing a spike in energy and labor costs as the country adjusts to the post-Brexit reality and tries to return to normal following the prolonged COVID-19-related lockdowns.
Brexit has increased duty costs; merchandise return rates have returned to post-lockdown levels; COVID-19 relief funds from the British government have been removed, and marketing costs are up, putting a further squeeze on the retailer’s profit margins in the new financial year.
Amid the anticipated decline in pretax profit for fiscal 2022, chief executive officer Nick Beighton said he will be stepping down. The current chief financial officer, Matt Dunn, will take on the role of chief operating officer, and oversee day-to-day operations, while the director of group finance Katy Mecklenburgh will support him as interim CFO.
The projections and changes sent Asos shares plunging 15 percent to 23.79 pounds in early afternoon trading in the U.K. At the end of the trading day the price was 14 percent down at 24.10 pounds.
The company’s 2022 forecast also predicts an overall sales slowdown, with midsingle-digit growth in the first half due to “industry-wide” supply chain pressures, which Asos said are expected to continue into the next year, limiting supplies from partners and extending production lead times — a big hit for a company that thrives off fast deliveries and reactive drops of trending fashion.
Fiscal full-year growth for 2022 is expected to be in the range of 10 to 15 percent, with a predicted acceleration in sales in the second half of the year driven by increased “event-led demand, an easing of supply constraints, and marketing investment to support international growth.”
“While our performance in the next 12 months is likely to be constrained by demand volatility and global supply chain and cost pressures, we are confident in our ability to capture the sizable opportunities ahead,” said Dunn.
“In the last two years, we have transformed Asos with investment in infrastructure and the customer offer; we have generated strong revenue growth and free cash flow and improved structural profitability. But we know there is more to do and today we are setting out details of our ambitious plan to significantly increase Asos sales and profitability becoming a 7 billion pound business within four years.”
To achieve this the company said it will continue to focus on “fashion-loving twentysomethings,” accelerate international growth and push its own-brand sales further. That plan is set to bring in at least 1 billion pounds in the next four years, the company said.
By contrast, fiscal 2021, which ended on Aug. 31, was a bumper year for Asos.
Group revenues were up 22 percent to 3.9 billion pounds, despite a significant slowdown in the company’s Continental European business. Europe grew just 4 percent, compared with 29 percent in Asos’ home market of the U.K., and 32 percent increases in the U.S.
Asos is not alone in bracing for a tough few months ahead. Fellow fast-fashion retailers including Boohoo and Next have also warned that post-lockdown and post-Brexit market conditions could slow their businesses.
According to fellow high-street retailer Next, the lack of foreign workers — many of whom left the U.K. during COVID-19 and cannot, or don’t want to, return — will impact key shopping periods, particularly pre-Christmas. Boohoo’s sales were down 9 percent compared to a 32 percent increase in the first half.
This is the first time since the COVID-19 outbreak when the growth of fast fashion appears to be compromised, if only temporarily.
Amid global lockdowns, and despite various scandals that linked retailers like Boohoo with poor labor practices, sales had been soaring for these companies. Earlier this year Boohoo bought Debenhams and Asos snapped up Philip Green’s ailing Topshop.
Now, given the reopening of physical high-street stores, the growing popularity of alternative consumption models such as rental and resale and supply chain issues hampering production and delivery cycles, fast fashion might have a very different face in the coming years.