Asos fears recession could dent demand

Shares in online fashion retailer fall by a tenth after sounding note of caution on future consumer demand

Asos has said that swathes of its young customers may be unable to afford fast fashion as Covid wrecks the fortunes of a generation, putting the crucial Christmas trading period at risk.

Nick Beighton, the chief executive of the online clothing retailer, said its shoppers are likely to suffer a severe blow from the crisis amid surging unemployment and an end to the taxpayer-funded furlough scheme.

His warning sent shares slumping more than 10pc even though Asos reported soaring sales and profits for the year to August because its website stayed open during lockdown.

Mr Beighton said: “It has been a good year for us but one of the things that we’re very mindful of is the economic impact of Covid-19 hasn’t yet filtered through to the 20-something audience in terms of potential unemployment. 

“We're very worried about how unemployment might fall for a 20-something globally. During lockdown lots of those people were supported by the equivalent of furlough schemes around the world.

“We’re also very concerned about how their lives will be disrupted in the run-up to Christmas.” 

Mr Beighton’s remarks came after annual pre-tax profits jumped by 330pc to £142m on revenues almost a fifth higher at £3.3bn. It managed to lure shoppers away from competitors, increasing customer numbers by 3.1m to 23.4m.

He added that Asos is considering a move off the Aim junior stock exchange and onto the main London market, where it would likely be catapulted into the FTSE 100.

The stock closed 10pc down at £48.25 but has almost doubled in the past 12 months. 

Asos sounding the alarm over bleak winter sales is concerning because budget fashion is normally considered recession-proof as hard-up shoppers hunt for bargains. Britons are also less likely to shop for party clothes if stringent social distancing measures are put in place and they continue to work from home. 

Young workers have already been particularly hard hit, with the number of  16-24-year-olds in employment plunging by 220,000 to a record low of 3.54m in the three months to August. Some industry observers believe that many of them might be unable to get another job for years as the economy changes and old roles disappear.

Asos also said that it could face a £25m blow from tariffs alone in the event of a no-deal Brexit.

It added that despite solid sales it will not be easy to top financial performance in the year to August 2020, when demand was turbocharged by customers snapping up casual clothes, trainers and sportswear. 

Buyers also opted for what Asos called “keyboard or laptop dressing” to look presentable on Zoom calls, and bought its wedding dresses, which start at £34, with one sold every three minutes in lockdown. 

Customers returned fewer goods and thought more about what they bought, which has reduced Asos’ costs linked to returns.

Mr Beighton also said his company is considering a listing on London's main market, in a change which could propel it into the ranks of Britain's blue chip stocks and the portfolios of millions of pension savers.

He said: “The time we move up is closer. We haven’t got a clear plan or a time frame but we will review it again as a board.” 

Mr Beighton rejected suggestions the company is listed on the junior market because the main market required tighter governance and more extensive disclosures about day-to-day dealings.  

Asos already acts as if it is on the main list in terms of corporate governance, the chief executive said. 

He said: “A key benefit for shareholders will be a reduction in volatility. At the moment with macro uncertainty, Aim does have more volatility than the full list."

Based on its current £4.8bn value, Asos would rank 80th on the FTSE 100 index, higher than engineering behemoth Rolls Royce and supermarket titan Sainsbury's - but it would not be automatically eligible for inclusion.

The firm would have to publish a prospectus first to ensure it ticks all the boxes, City sources said. 

Asos is preparing to make more of its clothes in Leicester, undeterred by controversy around the supply chain revelations at rival Boohoo and despite previously cutting ties with some manufacturers there

A small percentage of Asos clothes are made in the UK, but it will ramp up production at some British factories for a new range launching in a fortnight. The factories it works with were “all approved” and in line with its ethics standards, it said.