Will Rachel Reeves help rescue these 2 struggling FTSE stocks?
FTSE 250 stock ASOS (LSE:ASC) and AIM-listed boohoo (LSE:DEBS) have both carried their momentum into 2025. Unfortunately for shareholders, that’s negative momentum, as they’re down 30% and 55% respectively year to date.
The five-year returns are even more shocking. Over this timeframe, the ASOS share price has crashed 94%, while boohoo’s has cratered by 95%. The latter’s market-cap is now just £195m, putting it into the bottom half of the FTSE AIM 100 Index.
Losing market share
The reason for these crashes is twofold. First, the UK was in the middle of the pandemic in mid-2020, a time when online shopping was booming. However, the level of growth the two firms was enjoying was unsustainable as the world returned to post-Covid normality.
Second, both companies have struggled due to competition, particularly from Shein and Temu (owned by PDD). Fickle Gen Z shoppers continue to be wowed by Shein’s ultra-low prices and fast-turnaround supply chain.
Inflation and the cost of living also rose following the pandemic, putting pressure on consumer spending. And this probably helped Shein, as cash-strapped shoppers sought out the shiny bargains its app’s famous for.
This threat isn’t going away. Last year, Shein logged £2.05bn in UK sales, a 32% increase over 2023. That was more than boohoo (£1.22bn) and not far off ASOS (£2.7bn is forecast for its current fiscal year). Meanwhile, pre-tax profit surged 56.6% to £38.25m.
This growth strongly suggests that the Asian fast fashion giant continues to gain market share in the UK. Especially as both ASOS and boohoo have been reporting declining sales.
Chancellor to the rescue?
Sheinâs model involves shipping directly from China in thousands of small parcels rather than bulk-shipping containers to warehouses. And because each parcel’s generally under £135 â a couple of dresses might only cost £20 â it avoids duties and taxes.
Hence why Shein can afford to sell clothes at rock-bottom prices. However, this de minimis exemption for low-value imports has been scrapped in the US and EU. And Chancellor Rachel Reeves said in April that sheâs considering changing the tax break in the UK.Â
If the government does, itâll likely be announced in the Autumn Statement. And looking at Sheinâs UK profit margin, Iâd imagine the fast fashion company would immediately have to raise prices.
Needless to say, this would be positive for both ASOS and boohoo. It would level the playing field somewhat, and could even lure back customers (though US tariffs are still negative for exports).
Will Reeves do this? Well, Gen Z shoppers might not want her to because it could lead to noticeably higher prices. But British retailers have been crying out for it. B&Q boss Graham Bell recently said the de minimis rule was “killing the high street more than anythingâ.
My guess is that this tax break will be scrapped. If so, it could be positive for the ASOS and boohoo share prices.
Should I invest then?
Looking ahead however, both firms are still expected to continue posting losses, albeit at a reduced pace due to cost-cutting measures.
Personally, I don’t find fast fashion an attractive area to invest in because cut-throat competition results in wafer-thin margins. So I think there are better stocks out there for my portfolio today.
The post Will Rachel Reeves help rescue these 2 struggling FTSE stocks? appeared first on The Motley Fool UK.
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Ben McPoland has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
