The decade of cheap debt ended in 2022, and with it the fortunes of many fast-moving tech companies: Facebook’s parent company, Meta, lost 65 percent of its market value last year, while Tesla fell 69 percent. In the UK, fast fashion favorite Asos was the worst-performing stock in 2022, with shares down 78 percent. Asos isn’t alone either: Boohoo, which owns brands Nasty Gal and PrettyLittleThing.com, is down 70 percent in 2022. Even Shein, the privately held Chinese fast-fashion giant, has been valued by some investors at tens of billions below its $100 billion peak.
During the pandemic, fast fashion brands had a tough time. In April 2021, Asos announced results which saw profits rise by 253 per cent in six months and UK sales up by almost 40 per cent. Sales on Boohoo rose 41 percent over the same period.
Some have suggested the decline could mean our national obsession with fast fashion, worth a significant chunk of the £45 billion-a-year clothing industry, is finally over. Retail analyst Jonathan De Mello, however, says it also reflects a positive change for the high street. “Physical retail is improving,” he says. “We had a peak online during the Covid period… people couldn’t go out to the shops. Now it’s completely reversed.”
The latest retail sales figures from the Office for National Statistics, covering November 2022, show that while retail sales volumes fell by 0.4 per cent over the month, “non-store” retail sales, which mainly consist of online sales, fell by 2, 8 percent cent. And while major retailers’ shares fell during 2022, they remained more in line with the overall market. Next (which this week saw sales rise 4.8 per cent over the Christmas period) fell 27.8 per cent, while Associated British Foods, which owns Primark, fell 22.7 per cent.
Andy Saxton, director of fashion insight at Kantar, says that “much of the growth we’ve seen is online [during the pandemic] it will always be a temporary factor”. However, he adds, “What surprised people was how quickly people reverted to their previous behaviors. [The high street] it’s still a vital part of how people shop and will remain so for the foreseeable future.” While before the pandemic the ratio of online to high-street retail was around 30:70, he says, it’s now more like 40:60.
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British online fashion retailers will face three-pronged threats next year. First, inflation, which fell to 10.7 percent in November from a 40-year peak of 11.1 percent the month before, is causing people to tighten their belts. There is evidence that customers are returning more clothing to reduce their overall spending. “Return rates dropped to about 30 percent during Covid,” says De Mello. “Now they’re up about 50 or 60 percent.” A line in Asos’ annual report adds that “the effect of inflation on consumer behavior has become most evident through the impact on return rates, as they have been rising since May 2022.”
Second, online retailers have surprisingly high overhead costs. Their warehouses run lighting, IT networks, ventilation, heating and transport equipment. This exposes them to volatile energy prices, which will become an even more serious challenge when the Energy Bill Relief Scheme ends in April. This week the government announced a reduced rate of support for businesses, cutting its energy bill discount scheme from £18bn to £5bn. Rebates will still apply, but they will mainly target industries considered “energy intensive”, such as manufacturing.
Thirdly, storage costs will further affect this. Asos’ annual report, published in November, showed that warehousing costs rose to £427m, or 10.8 per cent of sales, in the year to August – up 20 per cent from £356.4m, or 9.1 percent of sales, the year before. . This will be compounded in April as business rates are revalued and warehouse operator rates rise by a projected 27 per cent, compared to a 20 per cent rise for retailers. Brick-and-mortar retailers complained of an imbalance with their online competitors who paid lower rates. The revaluation announcement by Jeremy Hunt, the chancellor, was intended to address this imbalance. This means, however, that online retailers are “susceptible to a double whammy in terms of higher wage costs for logistics and online delivery,” says De Mello. “With physical retail, you don’t have that as much.”
The popular store’s temporary recovery shows where online retailers made the biggest mistake during the pandemic. “They drew a straight line and thought that level of demand would continue,” says De Mello. The real surprise, Saxton adds, is that the decline came as a surprise at all. “It has always been the case that established high street retailers will regain some of their market share as people return to the shops,” he says. “Talk of the death of the high street has always been greatly exaggerated.”
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