Boohoo (LON: BOO) and Asos (LON: ASC) share prices have been some of the worst performers in London in the past three years. The two stocks have plunged by more than 90% from their 2021 highs as concerns about their business models rise. They are also some of the most shorted companies in the UK.
Slow growth and profitabilityBoohoo and Asos were once the best-performing e-commerce companies as demand for their affordable products jumped. As a result, their revenues and profitability jumped as most people compared their platforms to companies like Amazon.
Asos revenue growth has slowed down. It made £2.73 billion in 2019 and then £3.93 billion in 2022. It expects to make £4 billion this year. However, its profitability has been pressured, moving from £141 million in 2020 to a net loss of £9.8 million in 2022.
Boohoo’s performance has also been a bit disappointing. Its revenue in 2022 came in at £2.05 billion followed by £1.67 billion in the trailing twelve months (TTM). Like Asos, Boohoo has also moved into a loss-making category.
There are many reasons for this underperformance. For example, the cost of living crisis and weather factors made many people pull back from discretionary shopping. This explains why consumer staples companies like Tesco and Marks and Spencer have done well.
Further, Boohoo, specifically, has been forced to improve its supply chain after revelations of human rights abuses in Leicester. Most importantly, as e-commerce companies, they have seen more returns as they go through inventory challenges.
Are Temu and Shein threats?These companies are also facing significant competition challenges, especially from Shein and Temu. Shein, which is preparing to go public this year, has attained a valuation of over $80 billion. It has become bigger than most fashion retailers globally.
Temu, on the other hand, is owned by PDD Holdings, a Chinese company with unlimited resources. As a result, the two companies are spending billions of dollars in marketing, especially in the US and European countries.
Shein has expressed a desire to be a major player in the UK market. Last year, the company acquired Missguided from Frasers. This acquisition will give it more information about the UK market as it seeks to dethrone Boohoo and Asos.
Temu and Shein have an advantage over Boohoo and Asos. For one, these companies source their clothes from Chinese manufacturers while Boohoo relies on its facilities in Leicester. The reality is that the cost of making clothes in China is significantly cheaper than in the UK. Temu, on the other hand, deals with producers directly, which helps it to avoid the middlemen.
There are signs that the two companies are taking some market share from Boohoo and Asos. In September, Shein said that its revenue in the UK jumped to 1.12 billion pounds in 2022. There is a possibility that these sales jumped again in 2023. This is notable since Shein has less than 20 employees in the UK. Also, the company had no meaningful revenue a few years ago.
It is unclear how fast Temu is growing in the UK because its parent company has not published its sales data. However, a look at its traffic data shows that it has over 11 million monthly visitors in the country, higher than Asos and Boohoo. As shown below, the UK is its fifth biggest country by traffic.
UK is a key market for Temu
Shein UK had over 49 million visitors in Q3 compared to Boohoo’s 42 million and Asos 211 million. This is a sign that Temu and Asos are taking some market share from UK companies. However, it is unclear whether their popularity will continue in the long term.
I believe that Boohoo and Asos have more room to grow in the coming years but this trend will be slower than during the Covid-19 pandemic.
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