Junk Food

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What’s going on?

ASOS announced on Tuesday that its profit plunged in the first half of its financial year, and investors are starting to realize that fast fashion mightn’t be so good for them after all.

What does this mean?

If you were in the market for sweatpants, pajamas, or onesies during lockdown, ASOS was your one-stop shop. So much so, in fact, that the British online fashion retailer’s profit more than tripled between September 2020 and February 2021. But with rival stores reopening and supply bottlenecks limiting stock, the retailer’s been struggling ever since: sales in Europe were up just 1% between September and February versus the same period the year before, while those outside the US and UK crumbled 10%. That led to a measly 4% uptick in total sales. Throw in higher costs, and suddenly you’re a long way from a threefold profit: ASOS’s profit was down 87% for the six-month period.

Why should I care?

For markets: Fast fashion is wearing thin.

ASOS said it’s expecting sales to pick up again later in the year when it irons out supply kinks, which are particularly prohibitive to its fast fashion business model. But it might not want to get too big for its boots: there are more than a few raised eyebrows around the ethical and environmental impact of fast fashion, and some analysts are estimating that sales of those bargain-basement products could drop off as much as 30% in the next five years.

The bigger picture: Who needs ASOS?

UK retailers more generally aren’t doing particularly well: data out Tuesday showed that sales in the country were just 3.1% higher last month than the same time in 2021, and that the gain was down to higher prices as opposed to more purchases. That suggests that consumers are feeling the cost-of-living crisis, which doesn’t bode well for ASOS: nice-to-haves are usually the first to go when things get tight.

Originally Posted on April 12, 2022 – Junk Food

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