Boohoo’s profits have taken a hit after online shoppers returned clothes at a faster rate than before the pandemic.
The fast-fashion brand’s profits before tax slumped by 94% to £7.8m in the year to the end of February.
Its sales are still well above pre-Covid levels after high streets closed and shoppers turned to ordering online.
But since restrictions were lifted customers have flocked back to physical stores and Boohoo says its online shoppers are sending more items back.
Overall, Boohoo’s sales rose 14% on the year to £2bn. But it warned that challenges caused by the pandemic, including rising shipping costs and overseas delivery delays, would continue this year.
Boohoo’s brands include BoohooMAN, Karen Millen, Nasty Gal, PrettyLittleThing, Coast, Misspap, Oasis, Warehouse, Burton, Wallis, Dorothy Perkins and Debenhams.
For online fashion retailers, returns can be a major headache and a sign that business is not booming.
Wednesday’s news of a collapse in Boohoo’s profits sent shares down by more than 15%.
The easing of lockdown restrictions has led to customers going out more and return rates have been rising.
Boohoo said customers had returned items faster than expected in the second half of the year, with the rate now higher than it was before the pandemic.
As shopping habits change following the pandemic, the rising cost of living is also hitting consumer spending, according to official data.
The prices of items in shops has seen the highest increase in more than a decade.
Shop prices were up 2.7% year-on-year in April, the highest since September 2011 and up from 2.1% in March, according to the British Retail Consortium.
Julie Palmer, a partner at corporate restructuring firm Begbies Traynor, said that given rising costs, people may hold back on clothes shopping.
“The outlook isn’t pretty, with inflation a real concern,” she said.
“Boohoo is going to have to come up with some new looks if it is going to stay relevant as it doesn’t take long for consumers to shop around for faster, more relevant alternatives these days.”
Boohoo said that lockdowns in some of the key countries it sells in, like China, meant people were not buying as many clothes.
International delivery delays due to Covid also caused issues in getting stock from factories and out to customers.
The company said it expects these pandemic-related issues “will continue for the year ahead”.
To combat these problems, Boohoo said it was making its supply chain more flexible, its delivery network larger and investing in a new distribution hub in the US.
But its clothes could start to cost more with the company only committing to “mitigate where possible before passing prices on to consumers”.