Flawed plan

Asos may have to start charging for returns

Asos: flawed business model

Online fashion retailer ASOS must face up to flaws in its business model and may have to start charging for returns, according to an analyst.

The company posted a pre-tax loss of £32m from a profit of £177m and said adjusted pre-tax profit fell 89% to £22m (2021: £193.6m).

Shares were up 12.24% after new chief executive José Antonio Ramos Calamonte, said he would be instigating changes to get the business back on track.

“Today, I have set out a clear change agenda to strengthen ASOS over the next 12 months and reorient our business towards the future,” he said.

“This includes a number of decisive,  short-term operational measures to simplify the business, alongside steps to unlock longer-term sustainable growth  by improving our speed to market, reinforcing our focus on fashion, strengthening our top team and leveraging data and digital developments to better engage customers.

Group revenue squeezed out a 1% rise to £3.94bn for the year to 31 August. Sales at Topshop more than doubled (+105%).

AJ Bell investment director Russ Mould says the problem for ASOS is the current crisis has revealed flaws in its business model, including some thin operating margins.

“The online retail sector didn’t have to worry as much about the costly exercise of returns during the pandemic as people were reluctant to head to a busy post office to send a parcel back. At the same time, many weren’t watching the pennies as they are now and were perhaps happy to stick with a jumper that didn’t fit quite right.

“That’s no longer the case and the outlook for sales is weak as its youthful target audience, or their parents, face significant pressures on their disposable income.

“Costs are being cut and ASOS may have to follow the lead of other retailers and start charging for returns.

“ASOS’s current predicament is only adding to longer-term concerns about the whole fast fashion model and whether, in an age when the focus is on sustainability and where sourcing cheap materials and labour is a much bigger challenge, it has as solid a future as previously thought.”

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