Tears at Boohoo as online-only retail group sees profits plummet as stores reopen

As repeatedly stated, one of the big questions regarding retail in the vaccine economy is how robust and sustainable the shift to online commerce will be. As Salesforce’s Rob Garf noted earlier in the week, one might reasonably have expected a flattening, but what happened to online fashion retailer Boohoo wasn’t so much a flattening, but rather a flattening. simple.

The company recorded a shocking £117million fall in quarterly profit from £124.7million to £7.8million. COVID was largely blamed, along with distribution and delivery issues and increased return rates. CEO John Lyttle said:

Macro factors created short-term headwinds for the company. Our international proposal has been affected in foreign markets due to delivery delays. We are confident that we have the right product at the right price, as evidenced by our strong performance in the UK, which is driving market share gains. The only thing that’s not strong enough right now in our international markets is our delivery proposition. We are investing in a new DC [distribution center] in the United States, which will transform the proposition of delivery with the next day in our main American markets.

He added:

We currently have a significant scale with 4 distribution centers in the UK. We have ongoing automation projects in Sheffield and Burnley. At our Sheffield site, we are investing £125 million to build a state-of-the-art facility that will improve efficiency in the future. To put that into context, that’s 3 times what we’ve invested in our Burnley site. We expect a return on investment within 5 years, which will lead to significant cost savings in the future.

We also have plans for other sites, such as Daventry, where we will invest to achieve material cost savings in the years to come. When our UK automation projects are complete, we will have a sales capacity of over £4 billion. When the US distribution center opens, this will bring us to a sales capacity of £5 billion across all of our sites. Significant capacity to support our ambitious future growth plans.

Front and rear

Lyttle inevitably had an optimistic view of the longer-term outlook for online-only retailers:

Today, we have 13 fashion destinations compared to 7 two years ago. Along with these destinations, there are 83 customer-facing websites and apps that will continue to grow. The choice for our customers is unmatched. Our offer has tripled over the last 2 years, and our clientele has never been so new, with nearly 1,000 lines launched daily. And our reach continues to grow with 16 million social media followers and 20 million customers around the world buying our brands.

Work is underway on technology investments to overhaul the operational infrastructure, he said:

On the front-end, we extended our HR platform with upgrades across our Nasty Gal and Boohoo brands with our partner Salesforce, and we also launched Debenhams on a new modular headless platform architecture, which differs from our existing multi-brand platform technology. . Implementing a product inventory management system, PIM, has been a significant step forward, moving the business forward by standardizing and centralizing all of our product information. With 5 million biases across our brands, we are considered a pioneer in how to leverage the benefits of a modern PIM across the industry.

He added:

We have also invested in back-office technology, implementing additional digitization to support the scaling of our platform. Development of our microservices continues over the next 12 months to enable platform changes across finance, as well as the activation of our growth warehouse in 2023. The implementation of our new PO service and integration with our third party logistics carriers, has unlocked the visibility of our goods in transit throughout our supply chain.

The launch of our supplier hub has been a huge success, bringing all of our suppliers into the 21st century, removing manual onboarding processes and implementing a digital platform where our suppliers can interact with us, and has also enabled us to streamline our controlled and verifiable supply chain.

my catch

Boohoo’s fortunes mirror that of another online-only fashion retailer, ASOS, which last month saw its pre-tax profits plummet by 87%. In stark contrast, fast fashion retailer Primark, without any transactional e-commerce business, continues to thrive and grow. So, is the online-only model no longer the winner it used to be?

Inevitably the reopening of physical stores did not help. Boohoo and ASOS saw their fortunes soar when physical stores were closed. As store doors opened, the confident prediction was that a clientele that had effectively been under house arrest for the better part of two years would be gagged to spend on more discretionary items. There was no point in someone buying a fancy dress or an elegant suit when there was nowhere to go to wear them.

It doesn’t seem to have worked in practice. This does not mean that the online-only model has been broken. It just highlights how difficult it is to make it work in practice. Consumers have enjoyed the convenience of digital shopping for clothing, but the reopening of real-world stores, with the ability to touch, feel and try on purchases, is a pent-up desire that is once again untapped.

Despite falling profits, Boohoo’s revenue rose from £1.745 billion to £1.982 billion, but the group has a lot of work to do to restore confidence in its operating model. The pieces of the tech agenda that Lyttle outlined this week are the good ones, but they come at a steep price. It remains to be seen whether the market will allow the group the time necessary to settle their stall.

About Renee Williams

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