The performance of the Boohoo (LSE: BOO) share price has been relatively disappointing in recent weeks, even though the firm is riding high as the queen of online fashion shopping. After hitting 245p in early October, it has declined by over 20%. Given the uncertain outlook for retail shares in general, this is not a major surprise. And with consumers being relatively uncertain about spending ahead of Brexit, further declines in its share price cannot be ruled out.
Despite this, the company could enjoy a successful turnaround over the medium term. The potential for growth in online retailing remains high, and this could make Boohoo and its sector peer ASOS (LSE: ASC) relatively attractive from a long-term perspective in my opinion.
Online potential
Both companies are online-focused, and this could allow them to capitalise in the future on a growing trend away from bricks-and-mortar stores, as they have done successfully so far. Consumers seem to prefer ordering clothing online, with improved technology helping to increase the pace of change in this respect.
Since the two stocks invest heavily in having flexible supply chains and a high level of customer service, they may be able to maintain relatively high levels of customer loyalty. This could prove to be increasingly important as physical retailers continue to invest in their omnichannel capabilities. They could become increasingly competitive over time, so a loyal customer base may help Boohoo and ASOS to keep delivering improving levels of profitability in the long run.
Competitive advantage
The two stocks may also be able to enjoy a competitive advantage versus a number of other listed retail shares. As mentioned, they are online-focused and are not weighed down by the high business rates levied on high street stocks. This may allow them to become increasingly competitive in terms of price, which may become more important as shoppers appear to be getting more price-conscious as the uncertainty surrounding Brexit builds.
Recovery potential
With consumer confidence being weak, retail shares are generally unpopular among investors at the present time. This trend may continue in the short run, since the prospect of a no-deal Brexit seems to be stubbornly high. This could cause uncertainty to build among consumers in the near term, and may mean that investor confidence in both stocks reduces to some degree.
However, with Boohoo forecast to post a rise in earnings of 25% in the next financial year, it appears to be performing relatively well. Likewise, ASOS is expected to deliver a rise in net profit of 23% in the current year. Both of these figures suggest that the two companies have sound strategies and could generate impressive share price performances in future.
While both companies face external challenges, the trend towards online retailing does not yet appear to have peaked. Therefore, for investors who have a long-term outlook, the prospects for Boohoo and ASOS appear to be promising after what has been a challenging period for the two stocks, as well as the wider retail sector.
