Europe’s retail crisis is spreading to online shopping

We all know that Britain’s High Street is rapidly changing, with department stores such as House of Fraser, John Lewis and Debenhams reporting lower sales and fighting for every pound. Slowly, traditional stores are being replaced by coffee shops and Greggs stores, as consumers prefer more food outlets to Dorothy Perkins. As a result, the High Street has resorted to heavy price-slashing to keep consumers returning, in order to combat the online retailers such as Boohoo and ASOS.

Not only did ASOS’s share price rapidly fall, it also took its online competitors down with them

Yet ASOS warned that the retail crisis is slowly spreading to the online sector. ASOS changed its projected profits from a range of 20-25% to 15%, resulting in its share price plummeting rapidly by 43% at closing. Not only did ASOS’s share price rapidly fall, it also took its online competitors down with them. Boohoo reported a fall in its share price by 20%, while Zalando’s share price also fell by 18%. All of these falls can be attributed to falling sales being made online.

ASOS has stated that cutting their prices did not lead to greater sales, but instead resulted in lower profits in the lead up to Christmas. In order to remain competitive amongst its online and in-store competitors, ASOS slashed its prices as many of its competitors had begun heavily discounting goods before Christmas to encourage greater sales. Instead, consumers were able to take advantage of cheaper goods and greater frugality which resulted in lower profits for both the online and High Street markets.

The reason for lower spending amongst consumers is largely due to lower consumer confidence paired with the higher cost of living, resulting in families being more cash-strapped at Christmas. Young people in particular are facing higher rent and travel costs, as well as higher prices for groceries and energy bills, thanks to rising inflation and the fall in the pound. Brexit, the rising cost of living and greater political instability is forcing consumers to spend less in the run up to Christmas. This is hitting online sales in particular as the key demographic for the online market is aged between 18-35.

Estimated sales from Black Friday were predicted at 13%, but disappointingly they only went up by 7.3%

Retailers often rely heavily on Black Friday sales to boost their November profits and many also expect a boom in sales during the first week of December when people have received their wages, but this December boom resulted in fewer sales throughout November. Estimated sales from Black Friday were predicted at 13%, but disappointingly they only went up by 7.3%. Consumers have instead become more savvy shoppers by preferring to wait till the week before Christmas and taking advantage of pre-Christmas price-drops to save money, resulting in fewer sales for online retailers in particular, who rely on Black Friday sales heavily.

The fear amongst the online retailers is that their sales will continue to go into a downward spiral as retailers continue to slash prices to stay ahead of competitors. Inditex SA, the company that owns Zara, is one of few retailers that has resisted lowering prices both online and in-store and has also reported sales growth below its target prior to Christmas. This suggests that, regardless of whether retailers lower their prices or keep them the same, they are continuing to struggle to convince consumers to part with their cash due to wider economic problems.

In the U.S. however, low fuel prices, rising wages and a prospering economy has resulted in one of the biggest shopping booms since the recession

This is not only a UK-wide crisis. Although Britain’s shopping districts and online platforms have been hit by insolvencies of many well-known brands, ASOS’s sales in Germany and France have also fallen, while the US has seen its sales pick up. The protests in France by the ‘Yellow Vests’ has resulted in hits to the profits of shopping districts and independent retailers and in Germany, around half of retailers reported being disappointed with pre-Christmas profits and sales, indicating a greater problem than just Brexit. Germany and France account for two-thirds of ASOS’s mainland European sales, suggesting that their slump in profits and the subsequent falls in share prices also stems from economic and social factors in Europe. In the U.S. however, low fuel prices, rising wages and a prospering economy has resulted in one of the biggest shopping booms since the recession, with sales after Thanksgiving rising more than 19% than the previous year.

UK retailers have expected falling sales prior to the Christmas period in stores, due to savvy shoppers and being forced to tighten the purse strings as a result of the recent political turmoil. Yet most expected their in-store failures to be supplemented by increasing online orders. Instead, retail weakness has spread to the online market, with companies such as ASOS and Boohoo reporting falling profits and plummeting share prices as consumers spend less during the busy Christmas period. Projections show that this is unlikely to recover, suggesting that the downward spiral may have long-term consequences for the online market.