Asos (ASC.L) and Boohoo (BOO.L) yesterday saw a total £386 million wiped off their value after the online fashion retailers warned investors that they were feeling the strain of the cost of living crisis.
Asos and Boohoo slumped as much as 30% and 17%, respectively, on Thursday morning after both said a slump in sales had driven lower revenue in their most recent financial quarters.
Shares in Asos have nearly halved in the past month alone, with the fast fashion retail empire having informed investors back in April that its full-year earnings target would likely be under threat from soaring inflation and disruption caused by Russia's invasion of Ukraine. It also said at the time, however, that it had yet to notice any direct hit from the cost of living crisis on consumer behaviour.
But in its latest warning on Thursday, Asos said the cost of living-related impact to the market means that the company will miss its profit forecasts following a significant rise in product return.
As a result, the retailer slashed its guidance for full-year profit and sales with previous pretax profit estimates of £110m to £140m revised to a very wide range of between £20m ($24.5m) and £60m, the later implying it has very little visibility on demand patterns.
"What is now clear, based on the significant increase in returns rates that we have seen, is that this inflationary pressure is increasingly impacting our customers shopping behaviour,” Mat Dunn, Chief Operating Officer of ASOS, told investors on Thursday.
Commenting, Russ Mould, Investment Director at AJ Bell stated: "The pace at which online retailers have gone from sitting on cloud nine to being stuck in the gutter is quite remarkable.
He added: “It only seems like yesterday when everyone was celebrating how fashion retailers were doing so well during the pandemic as people bored at home were eager to keep refreshing their wardrobe. Now the pressure on family finances has resulted in a shift in consumer behaviour with more considered purchases and more people changing their mind once they make an order.”
Sustainability concerns
The cost of living-related impact on the market is only the latest in a series of expert warnings of a waning desire for the fast fashion sector, as once disposable attitudes to fashion are being put aside in favour of eco-friendly approaches and sustainable production supply chains.
The case for an environmentally-conscious consumer is hard to argue with. According to recent data from The World Bank, the fashion industry is responsible for more annual carbon emissions than all international flights and maritime shipping combined, and if the industry maintains its course, an increase of 50% in greenhouse gas emissions is expected within a decade.
The consumer shift is already being embraced on a global scale as cities and government bodies adopt encourage new goals and accountability. Earlier this year, the EU announced that they would introduce minimum requirements for recycled materials by 2030 to tackle the industry’s waste problem.
The same can be said for the consumer shift in influencer-led marketing. Love Island, a show typically symbiotic with fast fashion, is expected to have a huge impact this year on fashion trends by reducing the stigma of secondhand - or 'pre-loved' - clothing.
The ITV reality programme announced ahead of this year's show that it would be dressing contestants in pre-worn clothes from Ebay. The move away from retailers such as ‘I Saw It First’ is expected to influence more eco-conscious shopping habits in fans and in influencers who previously used their status to push followers to a culture of fast fashion.
It's something investors in the sector will need to consider carefully when thinking about buying into a potential recovery in the beleaguered sector. And although it might be too early to tell how long this effect will last, analysts are already forecasting a knock-on effect on warehousing and delivery companies.