Asos is to write off more than £100m of stock and cut costs after diving into the red after its annual sales growth almost halted as shoppers hit by the cost of living crisis reined in spending on fashion.
The online fashion retailer said it had agreed a £650m banking facility to give it “financial flexibility” and was aiming to rearrange its operations by cutting costs, improving management of stock and “refreshing the culture” of the business to become more open to new ideas.
The group is also considering selling via other websites in overseas markets or sharing warehouse space with others, in an effort to cut costs. It has not ruled out exiting some markets completely.
The changes come after Asos revealed that sales had risen only 1% to £3.94bn in the year to 21 August, when it dropped to a £32m pre-tax loss from a £177m profit the year before. Sales rose 7% in the UK, 10% in the US and 2% in Europe but sank 9% in other markets. The disappointing overall sales growth came despite sales at the group’s new Topshop brand more than doubling.
The group warned that it expected to make a loss in the first half of its current financial year and said it had built up almost £153m of net debts compared with the year before, when it held £200m of net cash.
Shares in the business rose almost 9% in morning trading after the announcement on Wednesday. The rise follows a plunge in Asos shares on Monday after it confirmed it was in talks with lenders over changing the terms of a £350m borrowing facility.
José Antonio Ramos Calamonte, the new chief executive of Asos, said the business had become too complex, allowed costs to rise too much and become “overstretched globally” so that it lacked scale in US, France and Germany.
He also said the group had become too reliant on discounting to attract shoppers as it had not invested enough in building the awareness of its brand or developing new products.
Asos will now buy its stock more frequently and closer to the time it will go on sale in an effort to ensure it has the right fashions.
Calamonte said the annual results were “resilient” but Asos could achieve “far more” and the retailer would “work resolutely to emerge from these turbulent times as a more resilient and agile business”.
He said it was important that its operations became more responsive to changing customer behaviour because there was “a lot of volatility” in the way people were shopping as they reacted to economic and political events.
Calamonte said Asos, which put up prices by about 4% this year, was “not obsessed with being the cheapest in the market” despite competition from retailers such as China’s Shein, and it was more important for the company to have the right fashion on sale.
He said: “Today, I have set out a clear change agenda to strengthen Asos over the next 12 months and reorient our business towards the future. 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.”
Asos said sales in the second half of its financial year had been worse than expected as shoppers reined in spending on autumn fashions because of the cost of living crisis and also returned more items as they bought more fitted fashions than during the pandemic lockdowns when stretchy casualwear was popular.
Calamonte said sales of dresses and tailoring, both of which are more likely to require a more precise fit, were more than double last year’s levels.
Returns also rose above pre-pandemic levels in the second half of the financial year as shoppers became concerned about the rising cost of living and bought more on “buy now, pay later” schemes. More sales in Germany, where shoppers are more likely to send back unwanted items, also boosted numbers.
Despite the profits hit from handling returned goods, Calamonte said Asos was not considering charging for returns – unlike its rival Boohoo.