UK retail - ASOS continue in trouble

All,

Further to our work on New Look and Matalan in recent days / weeks, the Retail Gazette writes it was the “worst June on record”, with total sales down 1.3% in June 2019 vs +2.3% comp. Overall LfLs were -1.6% vs +1.1% comp. As regards non-food purchases, sector LfLs were -2% for June and -4% for the three months to June (consider Easter timing). For pro-cyclical fashion chains we can usually multiply these effects.

The BRC described the high street as “bleak”.

However, a fair amount of the decline is said to be due to June 2018 having been helped by England’s romance with the World Cup and overall excellent weather. That said, we remember asking specifically New Look and Takko if they thought that the World Cup had brought extra sales in 2018 and how to think about 2019. I both cases the answer (predictably) has been “No, no difference”. Clearly that was not the case for New Look. For Takko the opposite is likely true. German retail sales spiked in June on the saharan heat wave and the lack of a World Cup depression per 2018.

According to KPMG "consumer spending is only going to fall further as things stand” as Brexit is cited as the main reason for the consumer caution. In particular impulse purchases (New Look / TCG?) have been postponed.

Meanwhile online non-food sales rose some 4% YoY - also not very impressive. And we know that online pure-plays are also facing issues.

According to an article in the Sunday Times, Asos may be cutting up to 100 staff at HQ.

The online pure-play reported a significant deterioration in pre-christmas trading (note that missguided did not suffer the same deterioration) and the suggestion is that the headwinds are persisting. Note that this somewhat runs counter to Matalan’s account of the situation, according to which online retailers have had a better spring as shoppers did not have to leave their abodes in the unseasonal weather.

In a more apparent sign of “times that are a changing” Asos has begun limiting its free returns policy to prevent serial returners from using ASOS as a free rental service. This should be water in particular on New Look’s mills and may be one of the first signs of gravity catching up with online high-flyers.

Finally: To the extent the latest weakness is caused by Brexit, the receding consumer confidence will also hurt Thomas Cook. To the extent its purely been down to the weather, TCG may to an extent have seen both effects set off each other.

Wolfgang