‘As Boohoo warns on profits, the disruptors are increasingly looking like the disrupted’

That changed this week as the fast-fashion pureplay shocked the City with a profits warning. A grisly combination of increased costs, consumer caution as the Covid-19 pandemic entered a new phase and spiralling returns wiped 14% off the etailer’s market cap as sales growth expectations were halved and likely earnings growth scaled back. 

Pandemic disruption was the fundamental reason for Boohoo’s predicament, for reasons many other retailers are familiar with. 

Boohoo flagged, for instance, cost inflation this year on inbound freight of £20m and £45m on outbound. Longer delivery times affected international sales – speed to shoppers’ doors is a big appeal – and Covid-spooked customers spent more cautiously. Crucially, rising returns – 12.5 percentage points higher than last year and seven higher than pre-pandemic levels – hit performance.

“The etailers’ recent challenges show that they are not masters of the universe any more than other longer-established retailers”

The big question is whether the storms buffeting Boohoo will die down soon or reflect bigger issues facing it and its online peers.

Boohoo was emphatic. Chief executive John Lyttle pointed out a strong performance in the core UK market – sales were up 32% year on year and 78% versus 2020 – and market share gains. He maintained: “The current headwinds are short term and we expect them to soften when pandemic related disruption begins to ease.”

Even if the challenges are short-term, there is a read across to Boohoo’s online peers. Just before Boohoo’s profit warning, recently floated In The Style also blamed a high returns rate for a profits plunge in its first half. They were down to £0.9m from double that in the previous comparable period. In the year to date, the fashion etailer has lost 62% of its value, similar to Boohoo.

Asos – down 55% and which recently parted company with well regarded chief executive Nick Beighton – flagged at its prelims in October that it anticipated “normalised returns rates” – higher than during the heights of Covid, when changes to what customers ordered such as more athleisure gear brought a £67.3m benefit.

Turning on a sixpence

The recent setbacks suffered by etailers have been accompanied by wider City disappointment with online companies. A spate of IPOs following the shift online sparked by the onset of the pandemic helped get the floats away but the shares have been down in the dumps.

THG (The Hut Group) was one of the biggest listings in years but has since lost more than three-quarters of its value. Made.com is down 35% in the year to date and Moonpig has lost 22% of its value over six months.

While some of those price changes reflect short-term turbulence, they also raise other questions. First of all, how long will ‘short-term’ go on? Who would have thought in March last year that at Christmas 2021 the pandemic would reach one of its most perilous moments? 

In fact, who would have thought it two months ago? Clearly not Boohoo’s customers: its return rate was partly because of an “exceptionally high dress mix”, itself no doubt down in part to shoppers’ anticipation of a ‘normal’ Christmas. Sadly, it looks as though the pandemic and its associated business challenges could last a good while yet.

“Boohoo has a good track record and at some point will recover lost ground. The wider shift online is here to stay”

However, the etailers’ recent challenges also show that they are not masters of the universe any more than other longer-established retailers. 

Agility has been one of the business buzzwords during the health emergency and overall, retailers of all types have risen to the challenge and showed impressive versatility. 

In the years to come, whatever direction the pandemic takes, agility and the ability to turn on a sixpence will only become more important. 

Boohoo has a good track record and at some point will recover lost ground. The wider shift online is here to stay.

But as they go through growing pains or face unaccustomed hurdles, many etailers will have to rethink what agility really means and how to navigate chaotic conditions. The disruptors, for now at least, are looking like the disrupted.