ACER

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?

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POISON IN THE AIR

Concerns about the environment have been bubbling away in the general and business community for the past couple of decades. In early October (2018) they came to the forefront once again with the publication of a major UN report on the future threats to the planet.

Specifically the UN Intergovernmental Panel on Climate Change produced a report which indicates there is a high risk of global warming if it passes 1.5 C degrees. If it goes beyond this figure then there are major threats of drought, floods and “all things nasty”.

This report has its genesis in the 2016 Paris Agreement and appears to reinforce the widely-held fears of governments and policies about the continuing way in which we are damaging the environment.

Coincidently and around the same time as the publication of this report, the UK government questioned some of the practices of fashion retailers about what specific measures they were implementing in order to address the environmental and social impact of the items that they sell to their customers.

They wrote to ten of the top fashion retailers (M&S, Next, Primark, Arcade, Asda, TK Maxx & Homeservice, Tesco, JD Sport, Debenhams and Sports Direct outlining their concerns and questions.

This sector is valued at around £20 billion to the UK economy.

This reawakened by interest in this subject – a topic that we address in some detail in one of the chapters in my book.

As we discussed in that chapter the environment touches upon almost every aspect of a retailer’s business operations: from transportation to recycling; from working conditions to pay and through to the materials that are used in clothing. It is the best example of how to define the word “ubiquitous”.

If we look at the literature on the retailer’s response to the environment we can see that many of them have adopted a proactive and planned approach. For example in the UK, Marks and Spencer was one of the first to develop and implement such a plan. Many others have followed.

Cynics have suggested that many retailers pay lip service to the environment: indeed some have been accused of using it as an attempt to “greenwash” people into believing that they are instigating initiatives when in fact they are, at worst, misleading them or at best, cultivating a “good news story” in order to place them in a favourable light.

The UK government has challenged fashion retailers to examine and re-assess their respective approaches to the design, production and discarding of clothing.

I am always intrigued by the role that the consumer plays in this process.

I will give you an example. Over the past twelve months or so I have conducted classes on this topic with a wide range of students (under-graduates, honours students, MSc and MBA candidates) in the UK, Europe, South-east Asia and the Gulf Region. I have asked each group to specify which of the following categories they belong to: environmentally aware shoppers, neutral or couldn’t care less.

In total I would have posed the question to over seven hundred students. While I appreciate that it does not necessarily represent scientific and publishable research, it nonetheless provides an indicator as to people’s views and opinions.

What was the result? In all classes and in all international centres, about ten per cent indicated that they were concerned about the environment, about sixty percent suggested that it was not something that concerned them and thirty per cent highlighted that they couldn’t care less about the topic.

What are we to make of these views? From a marketing perspective I would suggest that the various stakeholders have under-estimated the challenge of convincing and converting people’s attitudes before we might see evidence that shoppers are likely to change their shopping behaviour and habits.

While not necessarily challenging the exhortations from governments and institutions such as the UN, I would argue that it is not sufficient to “blind” people with all sorts of scientific data and evidence in a directional and in some cases, condescending manner. For many of us such messages go over our heads.

Specifically in the case of retailing shoppers need an incentive to switch their purchasing of clothes away from items that damage the environment.

This takes us to the heart of the matter. It is a reality that if people are to purchase eco-friendly clothing items, they will have to pay more for the privilege.

Retailers have also had to grapple with the issue of cost. However many have realised that if they examine and assess each aspect of their supply chain, they can pinpoint areas where savings can be made in areas such as recycling, energy and more efficient modes of transportation. In other words, while there may be initial costs associated with revamping transportation or introducing various initiatives within each individual store, benefits will accrue.

An example of this is where retailers work with third-party operators such as suppliers and freight forwarders in order to address environmental issues. In the latter case some of the more proactive freight forwarders are introducing technology to calculate carbon emission levels for their retailers. This initiative can break down the analysis by the mode of transit, the supplier and the location. They can provide information on what the statistics are equivalent to. For example 5 tons of CO2 emissions equals half of a person’s home energy.

Marks and Spencer have set a target, in their Plan A 2025 initiative of becoming a zero-waste business by that date.

Retailers are also reviewing their key performance criteria when selecting suppliers. The latter will increasingly have to meet stringent targets with respect to their use of eco-materials and transportation modes.

While all of these initiatives are being adopted in an increasingly focused manner by retailers, I still contend that not enough is being done to work more closely with perhaps the most important constituent stakeholder: the shopper.

Most of us do not like being told what to do or apparently being foisted with an increasing list of directives from policy-makers.

This is best illustrated in the use of plastics in many of the materials that are used in fashion retailing. Every time one of these items is put into the washing machine it releases micro plastic fibres. These find their way into the environment and collectively, over time, can damage the oceans. Do many of use care? How much of this does not register with us?

Many of us, particularly the younger demographic, actively participate in “disposable fashion”. We DO NOT purchase a shirt or blouse to last us for a few years (like perhaps our parents once did). Instead we wear it for a couple of times and dump the item in our bins. They eventually clog up landfill sites.

When we factor in the amount of merchandise that is dumped or discarded by retailers in such landfill sites, we begin to get an idea of the likely damage to the environment.

Can we convince people that we should only buy material that is less damaging, but more costly? Can we argue that we should buy clothing that will last for the longer-term? When many of us want to buy items that provide instant gratification but are not seen as something that remains in the wardrobe.

It will take time to change such views and retailers will have to become more creative in encouraging shoppers to alter their shopping behaviours. In my view it will take a generation to do so. What do you think?