Online fashion retailer Asos has reported slowing sales as the strength of sterling continues to weigh on its international business.
The web retailer, aimed at fashion-conscious twentysomethings, reported an 8% rise in sales for the three months ending 30 November. Although viewed by analysts as “a promising start” to its 2015 financial year, the figures were sharply down on the two previous years when sales growth averaged more than 30%. The headline figure masked a 2% decline in sales outside the UK.
Asos takes orders from almost every country and accepts payment in 15 currencies. International orders account for 57% of all sales, but they have been hit by the strength of the pound, which makes its goods more expensive abroad.
“That has been the big story and we have seen it getting worse and worse and worse,” said Asos chief executive Nick Robertson.
To restore its place in the ultra-competitive fast-fashion market, Asos is introducing country-specific pricing to free it from the resurgent pound. The retailer has introduced country-specific pricing in Australia and France and plans to extend it to other countries from mid-January. “We will forever be playing with pricing to make sure we are competitive in all markets,” said Robertson. The pricing plan is expected to eat into future profits: Asos has told investors its quarterly sales margin in future years would be 4%, compared with earlier forecasts of 5-6%.
In the three months ending 30 November, international sales fell to £141.5m, a 2% drop on the previous year. But it was a different story in the UK, where retail sales rose 24% to £104.8m over the same period, driven by demand for ripped black jeans, sequin-spangled tops and novelty bags.
Anusha Couttigane, senior fashion consultant at Conlumino, said the new pricing system would help Asos win back custom from international users, but cautioned that domestic customers were likely to subsidise international sales for some time to come.
Unlike many high-street rivals, Asos was less affected by the UK’s unseasonably warm autumn, because it sells more party clothes than coats and jumpers. The company was also boosted by Black Friday; it took seven orders a second on the discount day, propelling it to its best-ever trading week.
Robertson said Asos had recovered from a fire in its main warehouse in June which cost it £25m-£30m in lost sales. In this latest reporting period, Asos collected £6.3m in insurance payouts, which it is using to help pay for the new pricing plan in foreign markets. The cash injection allows the company to maintain expectations it can earn £46m in profits in 2015. But investors reacted angrily to the decision not to count the £6.3m as profit, sending Asos shares down 5% to 2,251 pence.
