After an 87 per cent drop in profits, why is ASOS royally out of fashion?

The Dutchess of Sussex wears an ASOS maternity dress when arriving in New Zealand
The Dutchess of Sussex wears an ASOS maternity dress when arriving in New Zealand Credit: GETTY IMAGES

Aside from the opening of Primark's new £70 million store and the 'Pri-mania' it's prompted, it’s been a gloomy old week for the high street. On Tuesday we were met with the news that Debenhams was at risk of shutting down 50 stores and scrapping 4,000 jobs as it fell into administration and yesterday it was the turn of ASOS to announce that there was trouble at base. The online giant reported that pre-tax profits have fallen by a considerable 87 per cent in the past six months.

Struggles on the British high street are hardly anything new; the past few years have seen profit warning and store closures reported on, what feels like, a weekly basis. But where heritage brands with traditional bricks and mortar stores have commonly been the focus (the performance woes of M&S, John Lewis and House of Fraser have all been greatly commented on), forward-thinking digital brands such as ASOS, have mostly remained unscathed until now. In fact only two years ago, ASOS was tipped to be one of the UK’s most valuable retailers, having overtaken Marks & Spencer in market value.

The mothership of the UK’s online high street, ASOS has seemingly gone from strength to strength in recent years, having been applauded for its representation of body diversity and support of the LGBTQ+ via a collaboration with GLAAD. It has increased its beauty offering, expanded into homeware and received two royal endorsements, the maternity collection having been worn by both the Duchess of Cambridge and the Duchess of Sussex. With all signs pointing to success, what exactly has gone wrong?

A statement from ASOS’ chief executive Nick Beighton said the brand had identified a number of things it "can do better", with changes in marketing being attributed to the fall in visits to its websites and a drop in its search engine rankings. However there’s more to it than that.

The tail end of 2018 saw the bad news for ASOS begin, as it reported weak profits and a share price drop of 40 per cent due to the heavy discounting of its clothes throughout November and December. Chiming in with the cut-price culture of much of the high street, the Christmas period saw ASOS slash its prices in an attempt to keep up.

Speaking to the BBC, Beighton said it was an "unprecedented level of discounting, something I've not seen before". Indeed, with jumpsuits and party shoes selling for a just a few pounds, it’s hardly surprising that profits are low. What’s more with substantial discounts available on a regular basis, shoppers are increasingly less willing to part with their cash outside of sale season - why shell out now when it’ll be cheaper next week? ASOS has dug itself into a discount-shaped hole.

This is where Primark, despite its questionable ethical credentials and the culture of pile-it-high, buy-it-by-the-bagful which it engenders, stands out. Its prices are consistently low, meaning that shoppers aren't afraid to splash out as soon as they spot something they want. Whether it can sustain the same levels of hype seen at its new Birmingham store remains to be seen, but it crucially doesn't have an online presence so is dependant on attracting crowds to its shops. 

The Duchess of Cambridge wears an ASOS maternity dress in 2015 Credit: GETTY IMAGES

Then, of course, there’s the Boohoo issue. When ASOS launched 19 years ago it was, to put it mildly, a shopping sensation. An only online-only destination offering on-trend affordable clothes and lots of them, it upended the high street giving the likes of Topshop and Warehouse a run for their money. However fast forward to 2019 and ASOS is no longer the disruptor it once was thanks to the unstoppable rise of Boohoo.com, Missguided and their many copycat brands.

Targeting the same young, fashionable, shopping-happy demographic, these brands are serving up Friday-night frocks faster and cheaper than ASOS ever have. And when a constant rotation of Instagram-ready outfits are required, there’s no contest.

Whilst the cheap and cheerful crowd are looking elsewhere, the rise of the considered fashion shopper is surely proving another hurdle for the retailer. 2019 has seen a growth in consumer interest around sustainable clothing and ethical manufacturing as more of us become increasingly aware of the effects our fashion consumption has on the environment.

With a less-is-more ethos proving popular (thank you Marie Kondo) and a lean towards investment in high-quality wardrobe keepsakes, a lunchtime binge on forty-quid ASOS focks (many of which you’ll end up returning anyway) is arguably less appealing.Interestingly ASOS has also  just introduced a new, more stringent returns policy in a bid to stop shoppers returning worn garments and getting their money back. Something that was apparently costing the retailer hugely.

It’s certainly not an easy time on the high street at the moment and ASOS isn’t alone in its struggles. However it’s by no means game over according to Beighton who says that the retailer’s performance is set to improve in the second half of the year. Will ASOS turn its fortunes around? As seems to be the way with everything going on in 2019, we’ll have to wait and see.