In the ever-evolving realm of online fashion retail, ASOS once stood as a shining star – a household name which soared to success over the pandemic. However, ASOS’ domination over this industry has taken an unexpected turn, as the profits of the company plummet, threatening a potentially irreparable financial situation. The future of this retailer is therefore in jeopardy, prompting the question as to how, ASOS found themselves in this position in the first place, and whether they can carve themselves a road to recovery.
Upon the onset of lockdown, and the consequential closing of most high street stores, many resorted to the Internet for retail therapy. This marked a pivotal moment for ASOS, which experienced a staggering 329% surge in annual profits in October 2020. Yet today, their financial predicament is drastically different. Recent reports indicate a concerning drop in UK sales by 13%, coupled with a forecast predicting a decline between 5% and 15% in the year leading up to September 2024. So how has ASOS faced such a fall from grace? ASOS partially blames the drop on the soggy July weather. Alternatively, it is arguable that the reasoning for this sharp decline stems from the very nature of their success being rooted in lockdown. Of course, with all the closing of high street stores comes their reopening, many of which returned with a vengeance boosted by revenge spending. Following this, many shoppers shifted away from online buying and towards physical stores once more, on account of a renewed desire and appreciation for the in-person experience, leaving ASOS in the dust.
Delving deeper into the intricacies of ASOS itself, the fundamental question arises: What sets this retailer apart? ASOS boasts high-quality, trendy and affordable products across an extensive range, characterised by both own-label and third-party brands targeted directly towards the demographic of 20-somethings. It appears however, that this plethora of products perhaps does more harm than good, since potential gems become lost in a sea of over-saturation. ASOS have been recently attempting to bolster its reputation with ‘20-somethings’ for being ‘trendy’ via social media campaigns that you might have seen on Tiktok or Instagram in collaboration with various influencers. Despite these efforts, there is a discernible argument that evolving consumer behaviour is outpacing ASOS’ ability to adapt, and the products that ASOS offer are simply facing a diminished demand compared to their previous popularity.
Arguably the most detrimental challenge to ASOS’ business, however, lies in its intensifying competition. With the simultaneous lockdown ascent of brands such as SHEIN and, more recently, Temu, ASOS simply cannot compete price-wise due to the ultra-fast fashion nature of these companies. Otherwise, concerning customer experience, it is becoming increasingly clear that consumers are favouring hybrid companies such as H&M and Zara over solely online retailers like ASOS on account of their physical presence. Intriguingly, changes in consumer values are affecting ASOS, and the rise of second-hand companies such as Vinted is gaining momentum and thus poses an additional challenge in this evolving market.
And of course, we cannot ignore the elephant in the room – the rising cost of living. For young people, and particularly the targeted ‘20-somethings’ demographic of ASOS, funds are dwindling. Financial strain means it is increasingly difficult to splash the cash on new casual wear whilst struggling to afford the basics of food and energy.
Ultimately, the survival of ASOS hangs in the balance. Despite the optimistic outlook of Chief Executive José Ramon Calamonte, who anticipates a resurgence in 2025 post-decline, there are multiple hurdles that ASOS must first conquer. ASOS has acknowledged the need for strategic changes to overcome their current financial challenges and return to its former position. The core of this plan centres around cost-cutting, evidenced by a 30% reduction in stock, the elimination of 100 jobs, and the removal of 35 unprofitable brands, alongside operational cuts. Yet, ASOS faces deeper problems than excessive expenditure, leaving the critical question: Is reducing costs enough to navigate the company on the route back to prosperity? The answer to this remains lingering and unanswered, and lies at the root of ASOS’ journey towards financial recovery.
