2018 has not proven to be a stellar year for retailers – particularly in the UK. A continuing decline in people’s incomes, many closures of outlets on the high street, ever-increasing costs and taxes all mean that retailers have continued to struggle. This has been exacerbated by the ever-increasing move to online shopping. The pure-play online retailers also hold significant advantages: no high leasing costs associated with physical properties and no exposure to business rates.
Amid all this doom and gloom, one retailer stands out in my view and is worthy of further analysis and appraisal. That retailer is, not surprisingly an online operator and I am referring to ASOS.
This company was established in 2000 and in the space of eighteen years has proved to be consistently successful. Figures released in October 2018 showed full-year profits to be up by twenty-eight per cent (£102 million), with UK sales rising by twenty-three per cent (£around £860 million).
The name: ASOS stands for “As Seen on Screen” and reflects the focus that the retailer places on the role that celebrities play in setting the tone and style in fashion trends. Initially it focused exclusively on such designs but over the years has broadened out the range to cater for diversity.
Its stated mission is to “build ASOS into the world’s number one destination for fashion shopping twentysomethings”.
Interestingly it has appeared to have made little impact in key geographic regions outside of the United Kingdom (7.4 per cent). For instance it holds a market share of 1.6 per cent in the European Union and 0.5 per cent in the USA. This indicates that there are great opportunities for further growth as we look into the next five to ten years.
Its continued success and growth prompted me to “dig a little deeper” into the reasons for its success. What is it doing that has led to that success? What are other retailers NOT doing?
I would certainly highlight the innovative nature of ASOS. “Innovation” is a term that is bandied about by many commentators. It is applied to companies in the same way that a footballer is deemed to be “world class” after a couple of impressive performances in two or three games. In most cases the term is devalued. Being truly innovative is essentially putting it at the forefront of every decision and initiative that is introduced by a company – not an isolated activity. A perusal of ASOS suggests to me that they have managed to earn the term “innovative” right throughout their continuing development since 2000.
Let us explore this further.
Technology represents one critical dimension of its overall strategy.
Before social media and mobile marketing became popular ASOS recognised their relative importance. They were one of the first retailers in the fashion business to recognise the importance of influencer marketing. They established a group of over one hundred “twentysomethings” (ASOS Insiders) who posted their personal preferences on social media. They also launched the ASOS brand magazine, containing high quality content and an opportunity for readers to order directly from the online magazine. This has built up over 800,000 subscribers world-wide.
The use of technology has featured more prominently in recent years.
For instance it recognised that its web site ordering, fulfilment and returns policies had to be “leading edge”. This is magnified by the sheer scale of the operation. It carries 85,000 to 90,000 items on its channel and introduced an average of 5,000 new items each week.
A key feature is the way in which it deals with returns. The young Generation Z shopper (born at the beginning of this millennium) demands quick refunds if they are unhappy with something they have purchased. It has invested in appropriate technology to manage quick responses to dealing with returns and building in a status-tracking feature so that customers can monitor progress.
Much of the work of online retailers such as ASOS revolves around logistics: the process of dealing with managing inventory and delivery. It has invested in distribution centres in Atlanta and Berlin in the last couple of years – an indication of where they see the likely potential for future growth and development.
In October 2018 it launched a voice search system for its shoppers to find items on the website. A shopper can initiate a conversation by using ENKI – a chatbot, on Google. It helps the shopper discover new lines (in both womenswear and menswear). The ASOS owners argue that this enhances the points of engagement between the retailer and the shopper and leads to a more seamless shopping experience. ENKI essentially finds products for shoppers and visually displays them on their smartphones.
It is also building on its technological capabilities by introduceing new languages on its websites, improving the detail in its recommendations section by developing new algorithms. It is also developing AI (Artificial Intelligence) to further improve the conversational interfaces. This together with the average of 5.000 new items that are introduced each week, arguably does place ASOS at the forefront of innovation.
The cornerstone of ASOS is all about engaging with and creating a social welfare dialogue with their customer base. This appears to work; judging by the financial performance of this retailer.
ASOS has committed to spending around £250 million annually to reinforce its position as an innovator and trend-setter in the fast-fashion sector.
Allied to the use of technology is the focus on creating a series of designs and items that set the trend for the “twentysomethings”. While still reflecting celebrity it has expanded its collections to all forms of fast-fashion.
In the summer of 2018 ASOS reinforced this aspect of its strategy by launching a new label: Collusion. This again is aimed at the Generation Z segment. In this case however the designs are gender neutral. This was launched with the help of influencers: one hundred Generation Z shoppers. The Collusion collection is picking up the trend towards unisex designs. Arguably Zara has already addressed this issue. However this tended to be reflected in the styling aspect. By investing so heavily in this label ASOS has gone deeper into the identity of the concept. This is captured in a quote from the ASOS CEO. Collusion is a “200 piece collection for a new generation united in their pursuit for inclusivity and representation”. The collection generally focuses on athleisure and casual wear. The former is picking up in the trend toward people wearing clothing that doubles up as leisure wear and training / gym gear.
It also adopts an innovative approach to pricing in general and discounting in particular. It is by no means the cheapest online fashion retailer. This is reflected on on-off, stand-out branded products, which are sold at a premium. Roughly five per cent of the items fall into this category.
Instead of applying a discount policy across all of its items ASOS has created what it called an “outlet section” as part of its online store. This is updated on a daily basis and can cover a few thousand items. The discounts can go up to as far as seventy per cent. Arguably this approach draws customers to visit the site on a frequent basis as they are likely to find constant changes to the discounted offering.
In summary there is a lot to like about ASOS and its value proposition. By putting its money where its mouth is, it has become a consistent innovator over the years. This places it within the potentially “game-changing” category in the fast-fashion sector. More importantly it gives it first mover advantage in many cases and provides it with a window of opportunity. It also takes its competitors some time to play “catch-up”.
To use colloquial terminology I describe ASOS as an ace retailer: one that gets to the key issues in terms of creating, delivering and maintaining a successful business proposition. What do you think?