Asos profit warning rattles markets as Brexit hits home
UK’s high street crisis is spreading online as ecommerce retailer’s shares plunge 40pc
UK shares fell sharply yesterday, as a profit warning from online fashion store Asos reverberated across Europe and reinforced woes about slow sales during the busy Christmas season, and worries over Brexit.
Asos shares plunged over 40pc, recording its worst one-day drop ever and losing roughly £1.3bn (€1.4bn) in market value. The news shook the market because it shows online-only clothing retailers are not immune to a growing crisis in the UK retail sector that up to now was largely felt on the UK high street.
It follows weak outlooks from other big UK retailers, including Dixons Carphone and Sports Direct.
Last week Sports Direct owner Mike Ashley said trading in November was “unbelievably bad”.
Separate data yesterday showed British consumer spending fell by the most since July last month, payments company Visa said, adding to signs of slowing economic growth towards the end of the year.
And another report, by accountants Moore Stephens, showed that more than 1,000 restaurants went bust in Britain in the year through the two months to the end of September, a 24pc rise on the previous 12 months as the industry grapples with overcapacity as consumer spending slows.
Restaurant chains such as Carluccio’s, Prezzo, Jamie’s Italian and Strada have closed outlets in the last year, and there are few signs of any pick-up in demand.
“Closures in the restaurant sector are at epidemic levels now,” Jeremy Willmont, head of restructuring and insolvency at Moore Stephens, said.
“The impact is visible on almost every high street of a major town or city,” he added.
Moore Stephens said that 1,219 restaurants closed across Britain between September 2017 and September 2018, up from 985 a year earlier.
“In the wake of Brexit uncertainty and interest rate rises, it seems consumers are tightening their belts and discretionary spending is the first thing to go,” Mr Willmont said.
British consumer spending grew last month, but at its slowest pace in more than a year and retailers have already sounded warnings about the Christmas period, including Sports Direct owner Mike Ashley”.
News that AIM-listed Asos, an online retailer which targets twentysomethings, cut its full-year targets after a weaker-than-expected November set the tone for the market yesterday, showing how online-only clothing retailers are also vulnerable to a growing crisis in the UK retail sector.
Meanwhile, data from Visa showed UK consumer spending dropped 0.7pc year-on-year in November, a sharper decline than October’s 0.2pc drop. Its figures are based on inflation-adjusted
usage data from its debit, credit and prepaid cards.
Black Friday discounts did not remedy slowing spending as some retailers had hoped. Challenging economic conditions and uncertainty surrounding Britain’s upcoming departure from the European Union have weighed on British consumer confidence, with expenditure down most months so far this year.
“The disappointing trend reflects relatively subdued consumer confidence as uncertainty lingers over the outcome of ongoing Brexit negotiations,” IHS Markit economist Annabel Fiddes said.
While spending at bars and restaurants picked up to grow by a robust 5.1pc, expenditure on clothes, recreation
and transport and communication all dropped by more than 2pc in November compared with a year earlier.
Online shopping growth slowed, but still outperformed face-to-face sales. Last week, market research company Springboard said the number of shoppers on the high street and at retail parks dropped by the most of any November since it started collecting data in 2009.
This points to a dismal end to the year in which household names like Toys R Us and House of Fraser buckled under pressure from online rivals, rising labour costs and unseasonably warm weather.