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Source: CMS Connected

Online fashion retailer ASOS published their first half sales, and it showed a steep loss fueled by consumers cutting back spending, high return rates, supply chain issues, and competitors cutting into their profits. Even with these struggles, ASOS CEO, José Antonio Ramos Calamonte is confident they will bounce back and turn a profit in the second half of the year. Amid the first half report, ASOS stock fell 11% only extending the steady downward trend of the stock over the past year.

ASOS is a British online clothing and cosmetic store that was founded in 2000. They are known for carrying clothing that is catered towards a younger demographic. ASOS not only has its own line of clothing, but also stocks more than 850 other brands, ranging from name brands like Nike and Tommy Hilfiger to small brands you probably have never heard of.

ASOS stock from 5/18/22 - 5/16/23 Source: Reuters

The company reported losses of 87.4 million in the first half, but forecast things to look better in the second half, confidently expecting a return to profit with a projection of second-half core earnings of 40-60 million pounds.

Last October, Calamonte announced an overhaul of the company’s business model, shifting their focus towards profitable sales over top-line growth after last year’s profit slump, but this change has yet to prove successful.

With that said, Calamonte points to several issues beyond the business model that have caused the slump in sales. One area to point to for this slump is the supply chain issues that have remained in the UK since Covid. The House of Commons reports that companies in the UK are broadly facing "global shortages of materials, staff shortages and transport delays".

Another area Calamonte pointed to was customers who were frequently returning products and taking advantage of discounted products. Although a small consumer base, made up of 6% of customers, were purchasing significantly more frequently than the average consumer and caused a loss of approximately £6 per order.

ASOS also has been facing new competition with growing fast fashion brands like Shein, which according to Bloomberg Second Measure now holds the largest U.S. fast fashion market share, more than H&M, Fashion Nova, Forever 21, Zara and ASOS.

The final problem reported are the ever-growing inflation rates in the UK. Inflation rates are causing consumers to purchase less, and are affecting warehouse and operating costs.

It is hard to stay confident in fast fashion brands like ASOS. Consumers are shifting their habits to more ethical purchasing, and brands like ASOS may not be able to return to the peaks they once had. We are also seeing that those who do not care about the ethics of purchasing fast fashion just opt for the cheapest available brand, which makes sense to why Shein is cutting into ASOS's market. With that said, we will just have to keep an eye on ASOS to see if they will have a return to profit in the second half of the year like they forecast they will.

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