Now that ASOS shares have crashed is there anywhere for investors to go?

The crisis on the high street has become a crisis online too.

Article updated: 19 December 2018 1:00pm Author: Michael Baxter

It feels like safe harbours are not that safe anymore. It matters not where you look, there is a whiff of trouble.

The high street is struggling — that must feel like the biggest shock since it was announced that in 2018 Christmas Day will fall on December 25th.

Working out why the high street is up against it is not exactly difficult either — but now it emerges that online retail seems to have hit a dark patch too.

If online has eaten the high street’s lunch, it seems that online retail’s supper has got cold.

ASOS enjoyed another increase in sales in its most recent trading period, up 13 per cent — yippee. Alas, profit margins were down 150 basis points. It blamed Brexit and the weather, but said it recorded “The weakest growth in online clothing sales in recent years.”

Returning to the ‘eating my lunch analogy’, if online has eaten traditional retail’s lunch, it seems that very same lunch didn’t taste very nice, anyway.

And ASOS can’t even blame rates for its trouble — the favourite scapegoat for retail to cast blame upon.

Shares in the company have fallen from a peak of 7630p back in March, to just 2,600 as I write.

But then this stock has not even been a good long-term buy. Shares were over 7,000 back in 2004. Although had you invested when the company was floated in 2001 you would have increased your money 100-fold, even after the recent falls.

The lesson to this tale seems to be that the best time to invest in online retail is after the dotcom crash. But since this crash occurred 17 years or so ago, and not even Elon Musk has invented a time machine, that lesson is not much use to man or mouse.

Online hope

Talking of a mouse, but only the type that you use with computers, Boohoo isn’t doing so bad.

Shares are off by about 15 per cent in the last month, and by a third since October, but it seems to me that the share price has been driven down by wider tech negative sentiment rather than anything it has done. Maybe it represents an opportunity.

Offline malaise

Not so long ago even John Lewis had got caught up in the high street doom and gloom.

“It is very important that we feel the jeopardy of what is happening right now,” said Sir Charlie Mayfield, the John Lewis Partnership company chair back in July. Rather dramatically, he added: “This isn’t a blip, it is a major shift and it has a while to run.”

Well that maybe, but I note that last week, sales at the store were up 9.3 per cent. Now that’s a pain I wouldn’t mind feeling. Then again, it put the performance down to price matching, I wonder how much of that was at the expense of falling margins.

Stare hope in the eyes, but should you blink?

I have long argued that augmented reality could return impetus to the high street, it combines the best of both worlds — you can touch and feel the product you want, but via an augmented reality device — for now, a smart phone, but in due course glasses or even contact lenses — you can view all kinds of information and imagery pulled down from the internet.

Apple certainly seems to think there is a lot of future in augmented reality and I am inclined to agree.

But how do you invest in that area? One company that is trying to create the magic of augmented reality for the high street is a company called Genesys, but this firm in not listed, it was bought out by private equity company Permira from its previous owners, Alcatel-Lucent in 2012.

Another unquoted company making waves in the augmented reality space is Blippar, but alas this week the firm announced it had fallen into administration — after achieving a billion dollar plus valuation not so long ago.

Dotcom crash 2 opportunity

But wait. All around I see falling tech shares — whether they are good or bad.

I may not have a time machine, but I can spot repetition of history. And tech stocks do have certain parallels with the dotcom crash period. But this time around, techs have more substantive business models behind them. When shares fall because of negative sentiment, buying opportunities emerge.

In 2001, the buying opportunity was extraordinary — I see a nice lunch time snack cooking in the oven, but I am not sure it is ready yet.

These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

Michael Baxter portrait photo
Michael Baxter

Economics Commentator

Michael is an economics, investment and technology writer, known for his entertaining style. He has previously been a full-time investor, founder of a technology company which was floated on the NASDAQ, and a director of a PR company specialising in IT.

See what else we have to say