viewBoohoo Group PLC

Online proposition to play big part in recovery for fashion retailers, analysts say

ASOS, Boohoo and Next are expected to benefit from the crisis, while AB Foods' Primark is not favoured

Ocado Group PLC -

The already increasing trend of online shopping has only grown further as consumers face lockdowns, becoming a need for the most vulnerable in some cases.

While the market seems to agree that food shopping platforms such as Ocado Group PLC (LON:OCDO) are the future, analysts point out that online will drive recovery for fashion retailers too.

The current disruption is wreaking havoc in the high street, with several companies launching emergency fundraises or entering administration in a matter of weeks - the latest being TM Lewin and Oasis Warehouse.

READ: ASOS upped to ‘overweight’ as JP Morgan says firm is ‘stronger’ following recent challenges

For pure-play online retailers such as ASOS PLC (LON:ASC) and Boohoo Group PLC (LON:BOO), shop closures could be a chance to snap up market share.

Although no one knows how the pandemic will pan out, they are both expected to capitalise in this time of market reshuffle.

“As online penetration increases ASOS has secured financing to secure its long term growth with reassurance for suppliers and consumers,” analysts at Citigroup said.

The trend will not favour Primark owner Associated British Foods PLC (LON:ABF), as it does not have an online offering.

Despite its widespread presence on the high street, Next PLC (LON:NXT) is also expected to emerge from the pandemic with fewer bruises than others.

READ: Next restarts online sales ‘in a very limited way’ due to coronavirus safety measures

Its online platform last year generated annual revenues of more than £2bn, of which around 25% comes from Label, the group’s third-party platform for brands such as Barbour, Hugo Boss, Superdry and Mint Velvet.

“With the industry likely to be swamped by unsold seasonal product, we believe Next will benefit as a useful clearance channel, especially given the group’s commission model, which will give the brands a level of control over pricing and ranging,” say analysts at Peel Hunt.

A strong online presence will benefit the luxury sector as well, although Deutsche Bank number crunchers say Burberry PLC (LON:BRBY) will face steep declines due to higher expenses from rents and marketing.

While the coronavirus outbreak has highlighted a more widespread reliance on online shopping, demand in the fashion industry has fallen sharply as consumers are prioritising their spending elsewhere or simply do not seek to buy new garments as they are forced to stay home.

READ: Pandemic "accelerates and exacerbates" retail shift for landlords, Barclays predicts

Still, Boohoo was reported to have seen higher volumes earlier this month, as a worker told The Guardian that weekly orders were 400,000 against the usual 120,000.

Such a performance was “surprising”, analysts at Peel Hunt said, and potentially not “indicative of the wider performance over lockdown”, as other firms saw sales dropping by half.

Nonetheless, demand is expected to spike when lockdown measures are lifted, according to Citi's analysts, though it will be followed by another slump due to lower confidence and higher unemployment.

“A V-shaped recovery in spending feels too bullish,” the analysts said.

“There will be a quicker recovery for younger consumers, but less so for older consumers and online penetration will take a noticeable step up.”

Quick facts: Boohoo Group PLC

Price: 315.5 GBX

Market: AIM
Market Cap: £3.97 billion

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