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Asos sees profits fall 68%, but restructuring costs put it in great shape going foward

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Overseas expansion and investment in growth have seen Asos log a fall in profits of 68% in what the company’s CEO describes as a “disappointing year”.

The etailer, long a doyen of the online, fast fashion retail boom, did see retail sales up 13% across the group, with UK sales growth of +15%, EU of +12%, US +9% and ROW +12%. The results, however, were hampered by substantial restructuring costs, with pre-tax profits down 68% to  £33.1m after substantial transition and restructuring costs of £25m in 2018 and a further £50.5m this year.

This belies the fact that total orders placed hit 72.3m, a 14% year on year growth.

Nick Beighton, CEO, says: “This financial year was a pivotal period for ASOS, where we have invested significantly and enhanced our global platform capability to drive our future growth. Regrettably this was more disruptive than we originally anticipated. However, having identified the root causes of our operational issues, we have made substantial progress over the last few months in resolving them. Whilst there remains lots of work to be done to get the business back on track, we are now in a more positive position to start the new financial year.”

Beighton continues: “Our focus now shifts to ensuring that we enhance our capability to drive an improved customer experience and leverage the benefits from the investments we have made. With over 60% of our revenue coming from international customers and a strong global logistics platform with capacity to grow, we are well positioned to take advantage of the global growth opportunity ahead of us.”

But the heavy investment that is dragging back the company’s results is likely to see a turn around in its overall fortunes in the next 12 months.

“Having invested heavily into the platform and foundations of the business over the last few years, both in terms of physical infrastructure and technology, our focus now shifts to enhancing the capabilities needed to ensure we leverage these investments,” says Beighton. “With the current investment in the global platform largely complete, this year represents the end of a period of elevated capital spend which we expect to fall towards more normal levels going forward. As a result, in FY20 we expect capex to be around £150m.”

Beighton adds: “As we look ahead to FY20 and beyond, the foundations we have built will allow us to continue capitalising on the opportunity to be one of the few truly global leaders in retail. We are positioned well, with a strong 20-something fashion focussed brand backed by the strategic assets, and in the right channel to continue capturing market share as consumers migrate online. “

To leverage this new structure and technology, the company is looking to strengthen its organisational capabilities in house and looking to remove non-core costs from its business to help reduce the restructuring debt.

It is also planning to work on increased product choice and ‘newness’, says Beighton. “Our combination of exclusive product, brand choice and consistent newness continues to differentiate ASOS’ proposition for a fashion loving 20-something customer,” he says.

“Our balance between curation of product from the most relevant third-party brands, alongside exclusive product from the ASOS family of brands, ensures we appeal to a broad range of styles and capture all moments within the 20-something lifestyle. Our focus for the year ahead is on further increasing our product choice, availability and newness to provide our customers with the best, most relevant product for them.”

Commenting on the results, Hugh Fletcher, Global Head of Consultancy and Innovation at Wunderman Thompson Commerce, argues that despite the company’s dip in profits, the speed and convenience it offers means that its business model will remain to be successful in future.

“Asos’ dip in profit is somewhat surprising given the popularity of online fashion and the company’s ongoing international expansion,” he says. “The challenge to deal with the increasing demand internationally, however, does signify how eCommerce continues to outperform the physical retail experience, and that retailers are now selling to a generation that has been conditioned by the speed and convenience of online shopping.”

Fletcher concludes:  “Although a fall in profit may on face value look concerning, the increase in demand from international shoppers shows that it has built a rapport with a generation of shoppers that would now consider it to be their go-to place for fashion. And the ‘fast fashion’ model will continue to be successful moving forward – in fact, 6-16 year olds are more demanding than ever when shopping online and 83% of children want their purchases to arrive faster. Online retailers, such as Asos, that prioritise speed, convenience, and affordable prices will not struggle to attract customers; how they cope with the increasing demand of today’s shopper is an entirely separate question that they’ll need to find an answer to.”

Addressing the international expansion of Asos and the costs verses benefits, James Barlow, country manager UK at Akeneo, says: “When scaling overseas, retail companies need to develop effective growth strategies and learn how to adapt to local markets offering a consistent customer experience throughout. By moving away from ad-hoc manual processes and implementing a global model instead, they will also be able to adapt to new markets and localise offerings more quickly while keeping control.”

He continues: “It’s essential to deliver consistent and enriched customer experiences across all sales channels to build customer loyalty. This requires businesses to adopt a centralised product information database designed for speed, efficiency, scalability, whilst ensuring team collaboration between central and decentralised teams and departments. The e-commerce industry is evolving at a rapid pace, expected to make $4.5trn in sales in 2021. 

Those businesses unable to adapt to new technologies and evolving platforms that allow them to put the customer first, risk being left behind.”

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