UK online fashion retailer ASOS said it needed to rebuild its once-successful business model after it reported an 89% drop in 2021-22 profit and forecast a loss in the first half, due to a rapidly deflating economy.

The group, whose shares have fallen 80% this year, made adjusted profit before tax of £22m in the year to August 31 2022.

This was in line with guidance that was lowered last month and down from the pandemic boosted £193.6m made in 2020-21

ASOS and rival Boohoo were early pandemic winners as locked-down consumers shopped online but they have struggled as people returned to stores.

The group said it needed to address problems with its supply chain, refresh its culture and the offer made to customers.

The demographic served by ASOS and Boohoo is particularly under pressure from the cost-of-living squeeze, while shoppers are returning significantly more products than during the pandemic.

ASOS said the first-half loss in its 2022-23 year would be exacerbated by elevated markdown to clear stock, with year-on-year declines in freight rates and cost mitigations expected to benefit the second half.

It said while trading was volatile September had showed a slight improvement relative to August.

"Within the UK, ASOS expects a decline in the apparel market over the next 12 months but remains confident in its ability to take share against that backdrop," it said.

The group said the move to "right-size" its stock portfolio in the first half would result in a non-cash write-off of £100-130m.

Capital expenditure is expected to be £175-200m, down from the previously guided £200-250m.