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Nick Bubb's verdict: Asos - a super online story

Nick Bubb
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The old adage of caveat emptor (“let the buyer beware”) sprang immediately to mind when the Bestseller Group began to aggressively build a stake in Asos just over two years ago.

The old adage of caveat emptor (“let the buyer beware”) sprang immediately to mind when the Bestseller Group began to aggressively build a stake in Asos just over two years ago. Given the extraordinarily high rating of Asos at the time, with the shares having soared to £10, did Bestseller know what it was doing?

Well, we know the answer now, as Asos has been a stunningly successful investment for the group, but big rich overseas players sometimes seem to have more money than sense when it comes to backing retail winners in the UK (think of the Bill Gates Foundation, and others, in JJB Sports, for example).

Two years ago Bestseller wasn’t exactly a household name in this country, and it still isn’t, although it is a big fashion retailer in Denmark and has expanded all over Europe, with some 2800 stores, mostly under the Vero Moda and Jack & Jones logos. It is privately owned and very profitable, but lacked exposure to the online fashion world and clearly saw Asos, and its burgeoning overseas growth, as a way of getting involved.

By February 2011 the Bestseller stake in Asos (through its investment vehicle ‘Aktieselskabet af 5.5.2010’) had reached 20% and the share price was up to £20, but it was still taking a risk - having moved the share price by its constant buying, it was vulnerable when it eased off its investment programme. And the key move of Asos’ distribution warehouse to Barnsley in the spring of last year still had to happen. Asos is, of course, no stranger to warehouse disasters (nor is the rest of the retail sector), but it got this very right and the new warehouse has been a massive triumph.

Even ‘fashion forward twenty-somethings’, who form the main customer base of Asos, can feel the pinch, however, and the bears had a field day last autumn when Asos reported that UK sales growth had slowed to just 1%. Was Asos in danger of ‘doing a Mothercare’: neglecting its UK base while it chased overseas glory?

A year later and overseas is up to 65% of group sales, with business booming in the US and Australia and the local language sites in Europe. So the UK is not as important as it used to be, but it is still good to see that UK sales have bounced by 15% in the latest quarter, despite the poor summer weather and the challenging trading reported by many of its high street rivals.

The soft comps help, of course, but Asos has also been able to drive increased UK sales with its lower pricing initiatives, particularly on own-label menswear, while also edging its overall gross margin upwards through tight markdown control. And its range and delivery and service standards remain impressive.

So, in the year just finished Asos had sales of just over £550m and has 5m active customers worldwide. The stockmarket rating is as heady as ever, but the share price is back over £20 and the market capitalisation is now getting on for £1.7bn. And, amazingly, Bestseller is still buying, with its stake now over 26%. Where this story will end is unclear, but next time you see Bestseller invest in a quoted retailer be sure to follow the bull.

About Nick Bubb

Nick Bubb has been a leading retailing analyst for over 30 years. He is a well-known commentator on UK retailing and is a founder member of the influential KPMG/Ipsos “Retail Think-Tank”.

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