Boohoo’s record marketing spend fails to boost sales

Boohoo.com, the online retailer aimed at the 16-24 year-old market, has issued a warning that profits will be 25 per cent below expectations after its marketing strategy failed to deliver the expected results.

For the 2013-14 period it stated its annual marketing expenditure was 14 per cent of revenue, estimated to be around £15m, but suggested slow growth rates for the last quarter of 2013 could have been improved with a higher marketing spend.

On the back of a successful start to 2014 as revenue continued to climb 24 per cent in Q1, the brand launched its biggest campaign to date.

The ‘#experienceeverything’ activity was split into a series of three different creative was rolled out acorss TV, underground, digital display, banners and video, blogger outreach, direct mail.

Boohoo again increased its marketing spend last October, revamped its website, and rolled out its autumn/winter campaign with international blogger Nadia Aboulhosn to target the plus-size market.

However, the activity failed to convert into sales as hoped.

Today Boohoo’s joint chief executives Mahmud Kamani and Carol Kane warned that revenue for the year ending February 2015 will be about £140m compared with a previous estimate of £157m.

Earnings before interest, tax, interest and other items, forecast at £19m, will be about £14m – down 26 per cent.

Kamani and Kane said they remained “very confident” that its pure-play online model and the significant investment in infrastructure, namely its warehouse, would drive growth.

However, analysts believe the company must do more to differentiate its advertising in order to stand out better in what has become a fiercly competitive market.

Kate Ormrod, retail analyst at Verdict, suggested that Boohoo could benefit from refreshing its advertising and marketing to differentiate between rivals such as Asos, Misguided and Pretty Little Thing.

“It has a strategy that’s worked many times before, so it wants to keep doing it. Over the last three years they’ve been very strong with a lot of outdoor advertising, for example on London underground.

"What we’re seeing now is that they are being copied by a lot of other players and online pure retailers. There’s a lack of differentiation now and Boohoo hasn’t quite made its mark. None of their campaigns are instantly recognisable as Boohoo.

“They’ve been doing the same kind of thing for the last couple of years and back then they were innovators but now there are lot of players copying them and doing something similar.”

Fiona Cincotta, senior market analyst at Finspreads, said the announcement has "exposed" some of the online retailer's shortcomings, particularly with relation to its marketing, in today's difficult retail climate.

"Boohoo is a relatively new brand, still carving out a presence in the fashion retail sector and this exceptional season appears to have exposed some shortcomings for the online company...For Boohoo this year it appears to be a case of too little too late from the marketing department. That said the chief executives of the company are still upbeat about the future of the brand and are confident that their investment in infrastructure will continue to drive growth," she said.

Meanwhile Jim Whyte, senior analyst at Fitch, agreed that as a relatively new brand it might take some time for Boohoo to find a marketing formula that works.

“Asos is very good at sending emails that prompt its customers and remind them of special deals. Boohoo is not as good at proactively triggering that engagement with customers, it hasn’t effectively created the same level of dialogue that some of its competitors have managed.”

He added that while investment in above-the-line advertising is important to establish itself, more efforts needs to be put into creating a constant dialogue with the audience.

“Boohoo seems relatively passive at the moment and in the very competitive and increasingly competitive sector it has to crack that.”

Shares plunged by over 40 per cent to a low of 21.7p on the announcement.

Article by Jen Faull and Natalie Mortimer

Join us, it's free.

Become a member to get access to:

  • Exclusive Content
  • Daily and specialised newsletters
  • Research and analysis

Join us, it’s free.

Want to read this article and others just like it? All you need to do is become a member of The Drum. Basic membership is quick, free and you will be able to receive daily news updates.