Europe’s retail apocalypse spreads to online from malls

Bloomberg

Europe’s retail crisis is spreading from bricks-and-mortar stores to e-commerce as Asos Plc plunged the most in 4 1/2 years after warning that Christmas shopping got off to a
disastrous start.
The gloomy update from a UK online retailer that competes with Amazon.com Inc. and has furnished fashions to the likes of Meghan Markle shows that retail weakness is widespread in the run-up to the holidays. Last week, Sports Direct International Plc Chief Executive Officer Mike Ashley said sales were “unbelievably bad” in November, sending the shares off a cliff.
Asos fell as much as 43 percent in London, wiping more than 1.4 billion pounds ($1.8 billion) off the market value. The news dragged down other online retailers like Boohoo Group Plc and Zalando SE, as well as store operators like Marks & Spencer Group Plc and Next Plc.
“This goes against the script,” said Stephen Lienert, a credit analyst at Jefferies. “It was supposed to be bricks and mortar that’s dying and online is the future, but that headline gets ripped up today.”
Asos cut its full-year sales-growth guidance on a
“significant deterioration” in November, blaming a high level of discounting amid economic uncertainty and low consumer confidence, which has been undermined in the UK by the continuing Brexit saga. The news shows that retailers can’t rely on online operations to make up for a decline in stores this year. If December doesn’t improve, the New Year may bring more profit warnings, or worse, to the sector.
Retailers such as Debenhams Plc and Marks & Spencer, which are in the midst of turnaround plans, may be particularly vulnerable. The UK’s shopping districts have already been decimated by a series of
collapses, including the insolvency of department-store chain House of Fraser, which Ashley rescued earlier this year.
Investors in retail debt are also feeling the pain. Debenhams’ 200 million pounds of bonds due July 2021 have plummeted 35 pence on the pound since the start of the year to 64 pence, the lowest since the notes were sold in 2014, according to data compiled by Bloomberg.
Asos cut its outlook for full-year growth to about 15 percent, from a previous range of 20 percent to 25 percent. It’s a sharp turnabout for a company that had grown rapidly, its market value at one point rivaling Marks & Spencer before
plunging to 2.1 billion pounds on Monday.
The warning dragged down Hennes & Mauritz AB, whose shares dropped as much as 7 percent. The struggling Swedish clothing retailer reported its fastest quarterly sales growth in three years on Monday, though analysts said the performance stemmed too much from discounting, favourable currency shifts and an easy base for
comparison.
Last week Inditex SA of Spain, which runs the Zara chain, pointed out the high level of discounting in the clothing retail industry and said it’s trying to resist lowering prices. That led to sales growth below its target at the start of the second half.
“Increased Black Friday sales are a negative for margins for apparel retailers like H&M as it makes it more difficult to get back to full-price sales in December,” wrote Richard Chamberlain, an analyst at RBC Capital Markets.
Zalando plunged as much as 18 percent while Boohoo fell as much as 20 percent before paring losses. After the warning from Asos, Boohoo issued a statement confirming its performance remains strong and within market expectations.