Online fashion giant ASOS is grappling with plummeting profits.

The company is set to close its recently opened warehouse in Lichfield, Staffordshire, a move that may result in the loss of several hundred jobs.

ASOS anticipates that its sales will continue to decline by as much as 15% in the upcoming year.

The Lichfield warehouse, which only commenced operations two years ago, is being shut down due to an excess of stock and "poor operating practices" that have eroded profits.

ASOS, operating solely online, is striving to regain its competitive edge by clearing old stock and focusing on efficiency. The company does not anticipate a return to profitability until 2025.

A Change in Fortune for ASOS

ASOS, once seen as a success story in the e-commerce sector, thrived during the pandemic as consumers turned to online shopping. In 2021, the company acquired several brands, including Topshop, Topman, Miss Selfridge, and HIIT, from the Arcadia group. However, with consumers returning to physical stores and facing a cost of living crisis, ASOS saw a decline in profits. The firm reported a pre-tax loss of £300 million for the year ending in September 2023, leading to an over 11% drop in its share price.

Efforts to Improve Profits by ASOS

Since José Antonio Ramos Calamonte assumed the role of CEO in June 2022, ASOS has been focused on reducing its stock levels and costs to boost profits. Over the past year, the company has cut stock levels by about 30% and plans to reduce stocks by an additional 16% in the coming financial year. As part of this strategy, ASOS announced the temporary closure of its Lichfield warehouse, which is expected to save £20 million annually and provide the company with flexibility regarding its future use.

A Challenging Move for ASOS

The Lichfield warehouse, which opened two years ago, was initially expected to create 2,000 new jobs and handle significant shipping volumes. However, ASOS found itself burdened by doubled stock levels and resulting discounts between 2018 and 2022. As a result, the decision to mothball the warehouse was made, although the facility may be sold or reactivated depending on future requirements.

The Road Ahead for ASOS

ASOS acknowledges that the closure of the Lichfield warehouse is disappointing for the local community and employees. The company is committed to managing this process in the best interests of all stakeholders. Despite these setbacks for ASOS, another British clothing retailer, Next, reported an increase in sales, driven by a colder-than-average August and cold autumn weather, which boosted full-price sales by 4% in the quarter to October. Next's online sales surged by 6.5%, counterbalancing a decline in store sales by 0.6%. ASOS continues to navigate its challenges while Next benefits from favorable weather conditions.

In a competitive fashion landscape, ASOS is working diligently to restore its profitability, but it faces tough decisions to adapt to changing consumer behaviors and market dynamics.