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Plenty of shoppers have ditched Asos. Now index compilers are set to do the same. On Monday, the £360mn online retailer was slated for removal from the UK’s FTSE 250 mid-cap benchmark, which is tracked by $7.5bn of funds; the final decision will be made next Wednesday.
Asos has had a chequered career. Its shares are worth one twentieth of what they were in 2021; performance metrics have wilted. Its gross profit margin last touched 50 per cent, a rough rule-of-thumb water line for the sector, in 2018, and fell to 40 per cent last fiscal year. Free cash flow, negative in three of the past four years, is expected to come in at barely a dribble this year, based on consensus forecasts.
That’s a comedown for a company that was — at least in the UK — early into the world of ecommerce. In the heady days of the 2010s, such an achievement was enough to earn it tech-stock treatment; investors duly valued Asos, at one point, at more than 100 times forward earnings.
But its roots are firmly tethered in the fickle world of fast fashion, where trends change on a dime. Asos had a fifth fewer customers last year than in 2021 and orders are running at roughly two-thirds levels that year, when shoppers grounded by the pandemic moved online.
It is a tale repeated across the landscape, both online — such as Boohoo, now Debenhams Group — and on the high street. This month River Island, with roots dating back to 1948, was forced into a restructuring after running low on cash.
In part, that’s due to the fact that competition has surged since Asos burst on to the scene. Just think of Germany’s Zalando, Chinese-founded Shein and Vinted, a platform for buying and selling used clothing and other goods.
On top of that, consumers, including in the UK, are cowed by slowing real wage growth and rising unemployment. Gen Z, at least on social media, is pledging frugality under the anti-consumerist “No-buy 25” campaign and China’s more restrained “rational consumption” trend.
That’s not helpful for a model predicated on volume growth. Asos, like its peers, has been changing things up and cutting costs. Inventory control, mismanagement of which left it with piles of dated clothes it had to write down, is improving. In the first half, just 20 per cent of Asos’ fast fashion had been hanging around for more than six months; the previous year the proportion was half.
The clearout is welcome but too tardy to prevent ejection from the index. That is the pity for Asos: investors, like fashionistas, tend to move in herds.
louise.lucas@ft.com
