Asos says it is investing for growth as it set out plans to almost double yearly sales to £7bn within four years. But the retailer says volatile demand and pressures from the global supply chain are likely to hold back progress in the coming year. Chief executive Nick Beighton has stepped down, replaced in the interim by chief financial officer Mat Dunn who is stepping up as chief operating officer.
The news comes as Asos today reported group revenue of £3.9bn in the year to August 31. That’s 20% more than the previous year. Retail sales of £3.8bn were 19% up on last time, with sales in the UK up by an “exceptional” 36%, in the US by 21% and in the EU by 15%. Sales in the rest of the world were 6% ahead of last time. Pre-tax profits of £177.1m were 25% ahead of the £142.2m it reported last time.
The growth came as the retailer bought the Topman, Topshop, Miss Selfridge and HIIT brands from the failed Arcadia Group and integrated them into its business. US multichannel retailer Nordstrom has taken a minority interest in the former Arcadia brands, which it is now selling in its stores and on its US website, with more Asos brands, such as Asos Design and Collusion, to follow. Since acquisition, sales of the Arcadia brands have grown by triple digits in the UK, US and Germany markets. Asos has also seen its active customer numbers grow by 3m – or 13% – to 26.4m. It shipped its first Topshop wholesale orders and is now working with a trimmed down number of wholesale partners, with a focus on digital. It now sells via Nordstrom, Zalando, Yoox, GFG and Namshi.
Asos chief financial officer and interim chief operating officer Mat Dunn says: “Asos has delivered another strong performance, with continued growth in customer numbers driving further increases in sales and profits. Our success has been underpinned by our focus on delighting fashion-loving 20-something customers with greater choice, service, and engagement. We have also continued to invest in our platform and offer, including the successful acquisition and integration of the Topshop brands. This performance is based on the hard work and determination of all Asos-ers and I want to thank them for everything they have done.”
The fast fashion retailer, ranked Top50 in RXUK Top500 research, now expects sales to grow by between 10% and 15% in the coming year, with first half growth likely to be “in mid single digits”, partly as a result of continuing supply chain pressures but also as a result of the comparison being with a particularly strong period last year.
Supply chain issues
But sales were lower in the final quarter of the year, at 15%, as Covid, Brexit and global supply chain costs rose. Fourth quarter sales in the UK (+29%) and US (+32%) were less affected than those in the EU (+4%) – affected by global supply chain issues – and the rest of the world (-4%) – affected by Covid-19 disruptions to delivery. At the same time, gross profit margins fell by 200 base percentage points to 45.4%, as a result of higher freight costs, post-Brexit duty costs, and factors including product mix, foreign exchange pressures, and higher spending on the price of Asos Design products. The retailer says it has worked to reduce the impact of Brexit on costs, but expects a portion of this to remain, while lead times have also got longer between the UK and EU, as more customs checks take place. Staffing costs have also risen amid competition for US-based warehouse staff; the retailer plans to increase levels of automation.
Sales in ‘rest of the world’ markets including Australia and Russia have fallen as delivery ties have lengthened. The standard delivery time to Australia has recently lengthened to more than 30 days, for example. Asos has moved more stock to Russia and says that sales in that market have started to improve as a result.
How Asos plans to get to £7bn revenues
Asos is aiming for annual revenues of £7bn in the next three to four year, and says there’s plenty of scope for growth – with a potential market worth £430bn in the US, UK, Europe and its core rest of the world territories. It aims to get to that by increasing its own brand sales by at least £1bn, growing its international sales including doubling its US and European sales, and adding partner fulfilment to its platform. That will see Asos suppliers deliver direct to its customers – and says it aims to see around 5% of the products it sells on its platform delivered direct. This will start at the end of this calendar year, in partnership with a major sportswear supplier. Asos says this means that in time, shoppers will be able to see a wider range of brand products, including a more locally-relevant range.
The retailer will also invest up to £250m a year in capital expenditure – in the next financial year it expects to put about £210m into the automation of its fulfilment centres in Lichfield, which opened recently, and Atlanta, while investing more in the customer experience and into its data science capability.
“Looking ahead, while our performance in the next 12 months is likely to be constrained by demand volatility and global supply chain and cost pressures, we are confident in our ability to capture the sizeable opportunities ahead,” says Dunn. “In the last two years, we have transformed Asos with investment in infrastructure and the customer offer; we have generated strong revenue growth and free cash flow and improved structural profitability. But we know there is more to do and today we are setting out details of our ambitious plan to significantly increase Asos’s sales and profitability becoming a £7bn business within three to four years. I am delighted to be taking on the role of COO and will work tirelessly with all Asos-ers to deliver against our refreshed strategy.”
Asos sells online to more than 200 markets through its app and mobile and desktop websites. It fulfils sales from centres in the US, US and Germany.
Asos recently set out 2030 environmental, social and governance goals – be net zero, be more circular, be transparent and be diverse – in its Fashion with Integrity programme.