Returning To The Same Issue: ASOS Downgrade Profit Forecasts

ASOS is the latest retailer to highlight the real pain point of high returns rates whilst warning of a hit to profits.

The fast-fashion favourite said that despite sales growth in the 3 months to the end of May, profit had been affected by what it understands to be “inflationary pressures on consumers”. The company’s share price dropped by 15%, a twelve-year-low to 987.5p, post the update.

Whilst sales at ASOS remain higher than pre-Covid levels, it seems that the lockdown sales boost which benefitted online giants when consumers couldn’t get to physical stores, has certainly slowed.

Some shoppers have embraced the chance to head back into real-life retail but many face the stark reality of the heightening cost-of-living crisis. As consumers wrestle with the rising costs of essentials like food and fuel, an immediate impact has been felt on discretionary spend through all retail channels.

“What is now clear, based on the significant increase in returns rates that we have seen, is that this inflationary pressure is increasingly impacting our customers’ shopping behaviour” said ASOS Chief Operating Officer, Mat Dunn.

ASOS news comes just a month after one of its main competitors Boohoo, announced profits have taken a hit due to online shoppers returning clothes at a faster rate than pre-pandemic.

The Boohoo Group which is owned by the billionaire businessman, Mahmud Kamani experienced a 90% pre-tax profit slump in the last financial year.

Whilst Boohoo’s sales actually increased by 14% on the year, to £2 billion, the impact of returns, rising costs and challenges with overseas delivery delays have been felt financially.

The ‘free-returns’ offer has long been used as a powerful incentive across online retail platforms to entice customers with a reassurance on shopping from a screen.

It is an initiative that has been successful too, research from Paymentsense highlights that 78 % of customers are more likely to purchase from a brand offering free returns.

There has been a reality check on returns in the fashion sector of late, with big brand retailers implementing a charge to customers for returning goods.

A recent announcement from Inditex brand, Zara, indicates that there will soon be a charge for returns and this looks set to become the norm in an industry keen to deter serial-returners.

Indeed, Zara customers in the UK now pay £1.95 to return an order with the cost immediately deducted from their refund. That said, items can be returned in store for free and Zara confirmed this is still the most popular option for customers returning goods.

Next recently announced a charge increase for returning goods from £2.00 to £2.50 effective from June 2021, yet they also offer free returns to any of its 500+ stores.

Offering free returns in-store enables retailers to achieve a faster turnaround, getting the item back on sale; a leaner process which is more cost effective for retailers. With a boost to footfall, facilitating in-store returns can also provide an additional sales opportunity.

With an industry shift now marked with brands such as Next and Zara charging for returns, one might expect ASOS to have considered as similar route. Yet the brand confirmed in a recent statement that there was no plan to move to charging customers: “Free returns are a core part of the ASOS offer and there are no plans to change this approach”.

The ASOS sales growth has been buoyed with a brighter outlook on some of the supply chain issues that have been affecting the company over recent months – essential for a business focussed on speed to market and a high rotation of styles.

The organisation has also announced changes at the top with Chief Commercial Officer, José Antonio Ramos Calamonte, taking on the role of Chief Executive Officer from Nick Beighton who resigned last October. Jørgen Lindemann, currently a Non-Exec Director, will take the reins as Chairman, taking over from Ian Dyson in August.