No SOS Call Required For ASOS: Sales soar in spite of the pandemic
December 20, 2020
2 min read
What's going on here?
Despite the growing economic crisis worldwide today, higher demand for casual clothing has seen sales quadruple for the global online retailer ASOS.
What does this mean?
While the high street struggles under the pressure of the pandemic, with household names like DW Sports and Quiz going into administration, ASOS reported in August that its revenue only dropped 2% from the first half of the year, making a pre-tax profit of £142m. Lockdown restrictions forced people to move their shopping online and accelerated the sales of looser fitting casual clothing, sportswear and makeup which resulted in fewer returns. This success put ASOS in a better position to deal with the £5m costs of Covid safety measures, an interesting contrast to its situation last year in which profits had fallen 87%, yet its shares were rising in anticipation of the investment it was making in company growth.
What's the big picture effect?
Though its customer base has grown by 3.1m, the average basket value has declined in the second half of the year due to the “dramatic shift in consumer demand”. This has led to shares falling by 10% in response to the cancellation of the upcoming party season. Senior Investment Analyst Susannah Streeter of Hargreaves Lansdown warns that “profits from partywear will be thin” this year. However, she goes on to suggest that the Covid fallout could hit ASOS in another way, as “job prospects are uncertain … the company will have to be very choosy about the ranges and prices it offers”, particularly given its 20 something customer base, who are currently feeling the effects of the pandemic and the unstable jobs market it has created. The company hopes to address this with the launch of the new “As You” range, consisting of everything from everyday essentials to partywear and prices starting from just £8.
In response to its apparent success, ASOS has pledged to repay the £1.8m it received through government funding. This is significant following the recent estimation by the Office for Budget Responsibility (OBR) that of the £394bn borrowed by the government this financial year, £214.9bn of that has already been acquired. The more companies who can afford to follow suit, the less strain there will be on the economy.
As well as the economic impact of Covid on its young customers, share value has also been affected as ASOS are exercising caution due to the uncertainty surrounding Brexit. In the event of a no-deal Brexit, as a global company, it will face £25m in extra costs from the World Trade Organisation tariffs, following the absence of a free trade agreement. Though the company assures customers the “shopping journey” will not be changed it cannot offer a guarantee that prices will not rise as a result.
Though it seems ASOS is thriving as an online retailer, social distance rules are taking their toll on the company. Add the uncertainty surrounding Brexit into the mix and it’s unclear how long the company will enjoy its success.
Report written by Lauren Kent
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