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When is a 26% sales rise not good enough? In the overheated world of online

The dubious delights of being a quoted company were enjoyed by Asos this week.

Despite the online fashion company posting a global sales increase of 26% in January and February, its shares dropped by almost a fifth as investors decided this was not good enough. The sales rise in the UK alone for the first two months of 2014 was an astonishing 21%, but the bean counters in the City appeared worried that the mighty etailer had slipped back from its Christmas position, when it was racking up 38% growth. Do they not realise that fashion companies sell more in late December than in mid-January?

On Monday the Asos share price dropped by £13.76 to hit £49.50 before recovering to £58, just over 8% down on the day. As Drapers went to press on Wednesday, Asos shares were sitting at about £58.60. Given that its market capitalisation is now around £5bn, it is surprising that Asos, which now occupies Drapers’ previous offices in Camden, should still be listed on Aim, the junior London stock exchange for “smaller” companies.

Chief executive Nick Robertson made investors nervous by revealing that capital expenditure in warehousing upgrades in Barnsley and Germany and in its new online venture in China would cause a drop in the company’s profit margin from 6.9% to 6.5%, but assured them that the fashion fan’s favourite should top £1bn in sales this year. And that infrastructure investment is setting up the company to be able to handle £2.5bn in sales within another 12 months. Is that not growth enough?

The slightly hysterical overreaction to Asos’s statement is symptomatic of the overheated stock market reaction to anything to do with online shopping. The online white goods retailer was valued at an amazing £1.2bn in its recent flotation on the London stock exchange, while Asos’s smaller Manchester-based fashion rival attracted a £840m valuation when it made its Aim debut last Friday.

All this begs the question of how big online shopping could become. With estimates of online fashion sales ranging from between 15% and 30% - it rather depends on the category - it is interesting to speculate how high this could go. Even the most gung-ho advocate of etailing would be hard-pressed to make a case for suggesting that the level would go beyond 50%, but there is obviously still some growth to be had, which is what gets the investment community so excited. I am not convinced it will go as high - generally - as 50%. My guess is that it will settle in the high 30s or maybe the low 40s, so that leaves an awful lot of fashion being sold through conventional shops and stores. Our feature on new stores on pages 20-21 underlines that bricks-and-mortar retailers are still investing heavily in improving the experience of shopping offline.

Getting the blend between the two channels is now, quite obviously, the name of the game. On Thursday this week, after we have gone to press, the master of the art, Next, will be revealing its latest annual trading figures. There will inevitably be the usual comparisons about its performance against that of Marks & Spencer. As we note, there is strong expectation that Next’s annual profits (expected to be in the vicinity of £700m) will surpass those of M&S (which are expected to be about £630m this year). Given that rumours reach us that the new M&S website is attracting customer complaints about the difficulty of navigation, I don’t expect Marks to catch up any time soon.

Finally, it’s my happy duty this Friday to chair the judging session for the Drapers Footwear & Accessories Awards. As usual, we’ve had some cracking entries and there will be a distinct air of celebration at the awards black-tie dinner in London on May 1.

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