Online disaster: why Asos fell by 40% in a day and what this means for the online retail market

Unpleasant and sobering news for the retail market and especially e-commerce investors: the record collapse of the shares of one of the world's largest online clothing retailers, British Asos, showed that even the strongest positions on the Internet do not protect retailers from fluctuations in demand. Asos shares fell nearly 40% after the company slashed its holiday sales forecast due to the UK Brexit crisis and yellow vest riots in France.

• The “retail apocalypse” has reached online, at least in Europe, is how describes Bloomberg the current picture of the market after the collapse of Asos. The British online retailer's shares fell 43% today and closed down 37.5%. The company's capitalization decreased by $1.8 billion, and its largest shareholder, Dane Anders Holch Povlsen, lost $600 million of his $4.9 billion fortune.
• Following Asos, stocks of other large retail companies began to fall massively - online retailer Boohoo and Zalando lost 20% each, but offline Debenhams (-11%), Next (-8.5%) and H&M (-7%) were no exception. %).
• The reason for the collapse was the reduction in the forecast for annual revenue growth of Asos to 15% instead of the originally envisaged 20-25%. The forecast was worsened after summing up the failed results of November. Consumer confidence in key markets was weakened by negative Brexit expectations in the UK and yellow vest protests in France. As a result, during the peak season, Black Friday, retailers were only able to attract shoppers with "unprecedented discounts that cross all boundaries," Asos CEO Nick Beighton told reporters. Asos itself put a 20% discount on all products on Black Friday, but competitors offered even better deals. Bayton did not rule out that demand will remain low during the Christmas sales and in the following months.
• The Asos collapse shows that retailers' expectation that online growth will offset the decline in offline sales this year may not materialize, writes Bloomberg. “Everything is not going according to plan. It was assumed that [as part of the retail apocalypse] offline stores would die, and online was the future. That claim has been destroyed today,” Jefferies analyst Steven Leenert told the agency.

What do I get from this?

The larger the share of online retail in the total retail turnover, the less its market response to changes in demand differs from traditional retail: the Asos example shows that online retailers can be overvalued.