ASOS: The high street killer

If video killed the radio star, ASOS, with a little help from its online peers, is killing off the high street

asos model
ASOS appeals to “fashion conscious twenty-somethings", who are some of the most loose with their cash

ASOS PLC (LON:ASC) shares rediscovered some of their mojo on Wednesday, having endured months of declines.

That was after the online fashion retailer topped forecasts with its full-year profits and maintained its guidance for the year ahead, easing concerns that its big investment drive would restrict bottom line growth.

Pre-tax profits jumped to £102mln for the year to August 31, up from £80mln a year earlier, and just ahead of the top of the forecast range of £80mln-£101mln.

READ: ASOS jumps as full-year profits beat forecasts

Overseas growth had been the major driver in recent years, but the UK chipped in more this time around, with UK sales climbing 23% year-on-year, not too far behind the 27% growth rate outside of its home market.

ASOS’s surge in UK sales won’t have gone unnoticed by its bricks-and-mortar rivals, who have been struggling of late.

Superdry PLC (LON:SDRY) was the latest to blame “weaker consumer confidence” as it issued a profit warning on Monday.

It’s not alone though, Quiz PLC (LON:QUIZ) and Debenhams PLC (LON:DEB) have both cut their forecasts, while Coast went bust and House of Fraser almost followed suit, only to be rescued by Mike Ashley.

Millennials still splashing the cash

ASOS’s numbers make the argument, that it's nigh-on impossible to grow sales and profits in the UK right now, look redundant though.

So why is AIM’s largest company basking in the sun while its high street peers wilt in the heat?

First and foremost is cost: it’s a heck of a lot more expensive to manage a national portfolio of dozens of stores – paying rent, taxes, energy bills – than it is running a main headquarters and a handful of out-of-town factories.

That means ASOS can either charge less to achieve the same return or charge the going rate and turn a bigger profit.

Then there are the changing attitudes of British shoppers. According to recent research by the UK Cards Association, we each spend around £4,600 online every year – more than any other nation in the world.

That’s a far cry from the turn of the millennium when the high street, and its stalwarts like Next PLC (LON:NXT) and Marks and Spencer Group PLC (LON:MKS), were king.

Back then, shopping was seen as more of a pastime but now it’s viewed as a chore: it can sometimes take hours trawling through clothes racks in various stores to end up not buying anything.

You don’t get that same problem online. ASOS carries around 40,000 different products from a bunch of popular brands, including its own, on one site.

It has nailed its audience

Most of those clothes, shoes and accessories are what analysts call the ‘middle ground’, not massively expensive nor incredibly cheap – the kind of brands a lot of people buy.

That has posed a big problem for many high street retailers, as that has traditionally been their turf.

Retailers either side of this ‘mass fashion’ market have been relatively untouched though: Primark continues to prop up its parent company Associated British Foods PLC (LON:ABF), while at the top-end, profits are soaring at Harrods and Selfridges.

Within this middle ground, “fashion conscious twenty-somethings” (ASOS’s words) are some of the most loose with their cash, and in this regard, ASOS has its audience nailed.

Its presence on social media, regular student discounts and trendy clothes make it a favourite for spendthrift millennials. Can Next, Superdry and Debenhams say the same? Probably not.

Quick facts: ASOS PLC

Price: 5150 GBX

Market: AIM
Market Cap: £5.14 billion

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