Penny-pinching consumers, the beast from the east, ‘unseasonably warm weather’ - 2018 gave us some classic reasons for subpar takings among the high street retailers, as well as a few new ones.
Comparing most companies’ trading updates over the year starts to read like a corporate buzzword bingo, with it being only a matter of time before every firm had a full card. Online posterboy ASOS nearly managed to avoid the stock phrases but ended up telling us about the weather and weakening consumer confidence as it revised growth projections for 2019, over the Christmas period.
So this morning’s results from Boohoo might come as a bit of a surprise to retail watchers.
The Nasty Gal and Pretty Little Thing owner posted a 44% rise in revenues to £328.2m in the four months to the end of December, up from £228.2m a year earlier. Sales in the US leapt 78% to £70.4m, with the UK jumping 33% to £180m.
As a result, the online clothier now expects revenues for the year to the end of February to rise by 43% to 45%, topping its previous guidance of 38% to 43%.
Other retailers may be blaming picky consumers but I think Boohoo’s update shows just how valuable it is to be a picky investor.
The market has tended to talk interchangeably about Boohoo and ASOS, using both as proxies for the broader theme of online-only fashion propositions. And we know how closely they tied the two, after Boohoo shares dropped on a bleak profit warning from ASOS over the Christmas period.
But, while identifying long-term themes is useful for investors, we shouldn’t forget the value of bottom-up stock picking within those themes. Boohoo rushed out an update on the back of ASOS’s share plummet to make sure we knew it wasn’t the same story for them. As investors we don’t normally get that kind of treatment - it’s up to us to do the leg work and funnel the investment ideas down from theme to industry to sector and then the companies themselves.
Of course, that takes a lot of time, effort and skill so it’s maybe worth outsourcing that job to the pros. What we should keep in mind though, is the capacity for good business models to shine and outperform when the rest of the peer group is suffering. A rising tide lifts the winners as well as the laggards but when things get choppy we start to see the strength of the solid businesses in the pack.
There are still broader questions about how retailers adapt to consumer tastes, and how they remain profitable as they do so but many traditional UK high street brands have simply not caught the attention of young millennial and Gen Z consumers in terms of aspirations, trends, pace of product turnover and even the platform they use to shop.
It’s no mistake that this is where Boohoo started and continues to dominate. Train stations and buses are plastered with Boohoo, Nasty Gal and PrettyLittleThing posters, with rappers and footballers popping up to promote boohooMAN. And if the Gen Z crowd happens to miss all of that, there’s always carefully curated Love Island look books and celebrity endorsements through Instagram and any number of social platforms.
The British Retail Consortium said this month that high street retailers had witnessed their worst Christmas in ten years. If the high street stalwarts refuse to learn from the likes of Boohoo, it’s hard to see how 2019 will be better for them.
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