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.

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

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