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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
There is an irony that while London is pinning its IPO revival hopes on a possible listing of Chinese online fast-fashion retailer Shein, its homegrown internet clothing companies are going nowhere, even slowly.
Shares in London-listed Asos and Boohoo have lost more than 85 per cent in the past three years, as shoppers returned to bricks-and-mortar stores in greater numbers than anticipated after the pandemic-era online sales boom. Even if Shein does pull off a successful London IPO (and it will need to overcome multiple investor concerns first), the rest of the UK fast-fashion sector won’t be able to ride on its coat-tails.
The growth of this Chinese competitor has left UK rivals looking dowdy. But many problems are of their own making. Asos failed to manage its stock levels, buying too much in the belief that unsold garments could be stored and flogged later at a discount. It spent time and money automating too many warehouses.
Boohoo, too, invested in a distribution centre in Pennsylvania that opened in August 2023 to offer US customers next-day delivery. In an embarrassing retreat, it said on Wednesday it would fulfil US orders from the UK and take a writedown against the US centre.
Until recently, Asos’s investors had also been distracted by £500mn of bonds due to mature in April 2026, and whether it would need to raise more equity. A successful refinancing, announced last week alongside a deal to sell 75 per cent of the Topshop and Topman brands it acquired in 2021, has alleviated concerns for now. Asos is left with £73.6mn of bonds that still mature in April 2026.
Unless Asos can improve cash flow, this is a reckoning delayed: free cash flow was negative for the past two years. Chief executive José Antonio Ramos Calamonte, who took charge in 2022, is making changes, including to stock. It took a writedown in 2022 on some of its out-of-fashion inventory and mothballed one of its warehouses in England. It is pushing to get new own-brand designs — which make up about 40 per cent of sales — to market faster and to sell more items at full price. Yet Barclays is forecasting that Asos will not generate positive free cash flow until its 2027 financial year.
Competition from the likes of Shein and Temu isn’t going away. Asos warned last week that sales would be slightly below its previous guidance, suggesting a fall of 5 to 15 per cent. Despite their wardrobe clear-outs, the best days of the UK’s homegrown fast-fashion names still look firmly behind them.
