Online fashion retailers take a hit from supply chain disruptions
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Profitability of online fashion giants takes a hit from supply chain disruptions

By MarketLine   14 Oct 2021 (Last Updated October 14th, 2021 17:28)

Supply chain disruptions have led to warnings about precarious profit performances for online fashion retailers amid challenges for the UK retail sector.

The UK is currently facing supply chain issues, stemming from staff shortages, Brexit and Covid-19 related issues, resulting in a number of leading fashion retailers issuing profit warnings.

On October 11 2021, ASOS announced that its chief executive Nick Beighton was to step down with immediate effect as the online fashion retailer warned that supply chain problems and rising costs will affect its profits moving forward.

The move came as ASOS warned that rising logistics and other costs could cut profits by 40% next year, hampering the company’s overall performance. While adjusted pre-tax profit rose 36% to £193.6m ($248.3m), the company said it expects this figure to fall to between £110m ($141.1m) and £140m ($179.6m) next year.

ASOS isn’t the only online fashion retailer suffering from the tough climate currently facing the UK retail sector. Despite reporting record sales for the six-month period, the Boohoo Group saw shares declined by more than 11% on September 30, as profit before tax fell to £24.6m ($33.1m) from £68.1m ($87.3m) the prior year.

Profit warnings are a symptom of issues facing supply chains

Over recent months, there have been a number of supply chain disruptions that have resulted in delayed deliveries and increased prices. The single biggest cause of supply chain disruption is staff shortages, with Brexit, Covid-19 and wider economic conditions all contributing. Furthermore, major manufacturing hubs around the globe are still grappling with pandemic-related disruptions.

The haulage sector, which is essential for the transport of apparel products across the entire supply chain, has been particularly badly affected, with industry bodies estimating a shortage of 90,000 to 100,000 drivers across the country.

Not only are supply bottlenecks occurring, but the price of shipping is also on the rise. According to Logistics UK, the cost of importing shipping containers from China to the UK has risen by up to 800%. These price increases have dented profits for fashion retailers, which due to their global supply chains, must use either shipping or air freight. For instance, ASOS has 249 factories in China which produce a significant number of garments.

In the three months to May 31, 2021, Boohoo’s profit margins were down to 55% in the first quarter, six percentage points lower than in the same months last year, in part because of supply shortages caused by Covid-19 disruption in China, Turkey and other manufacturing hubs.

Online fashion giants have previously performed well amid the pandemic

While supply chain issues are currently weighing heavy on the two biggest online fashion giants, they have still managed to achieve strong revenue growth, regardless of the impact of the pandemic. Despite current headwinds, FY2020/21 was another stellar year for ASOS, where roup retail sales grew by £612.8m ($786.1m) to almost £3.8bn ($4.8bn) in 2020, with an outstanding performance in the UK market that achieved 61% sales growth versus two years ago.

Boohoo also emerged from the Covid-19 pandemic with its sales performance untarnished, with FY2020/21 revenue increasing by £510.4m ($654.7m) to £1.7bn ($2.1bn). Revenue growth at the two companies was driven by the shift to e-commerce and the strong demand for Athleisure and loungewear, trends which were bolstered by the pandemic.

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