Etail giant Asos’ decision to close down its Chinese website and operations emphasises how tough it is to conquer the country.
While it is well known that the Chinese economy is weaker than it has been in the recent past, that is not thought to be the driver of Asos’ decision to scale back its operations in China.
The etail giant launched its Chinese website in November 2013 and it was its eighth country-specific platform. In that short time, however, Asos has racked up operating losses of £18m.
Coupled with Asos’ own estimate that to close down its Chinese operations will incur one-off costs of £10m, the retailer is looking at the best part of £30m on an unsuccessful venture.
They have looked five to six years down the line and decided to stop now, rather than losing this amount of money for that many years
John Stevenson, Peel Hunt
The general consensus is that Asos’ decision is understandable in the circumstances.
It’s hard to get traction on the ground,” says John Stevenson of broker Peel Hunt. “It was always going to be that way.”
He added: “They never planned to be profitable within three years. The losses are marginally more than expected but I think this is a medium-term view. They have looked five to six years down the line and decided to stop now, rather than losing this amount of money for that many years.”
The strength of China’s own ecommerce options – notably giant Alibaba, owner of Tmall, described as “China’s largest third-party platform for brands and retailers in terms of gross merchandise volume” – also put a stranglehold on Asos’ plans in the region.
Asos was not on Tmall and one industry observer notes: “The internet traffic for retail [in China] is centred around Tmall.”
Other retailers, such as Inditex and Burberry, which have the benefit of on the ground presence in China, also sell their products through Tmall, establishing their own interfaces but using the ecommerce giant’s platform.
The fact that international giants such as Inditex and Burberry chose not to launch their own ecommerce ventures in China demonstrates the scale of Asos’ challenge.
Asos probably thought that having Bestseller [Asos’ Danish investor] operations over there would help. Not in the everyday running but in broad-brush terms – they thought it would help them do it
Although Asos invested in local, experienced ecommerce talent, the lack of a Chinese joint venture partner may also have hindered Asos’ progress. Most of the international retailers in China have a joint venture partner, as is the case with Supergroup, Mothercare or House of Fraser, which is majority owned by Chinese group Sanpower Group.
“Asos probably thought that having Bestseller [Asos’ Danish investor] operations over there would help,” says the source. “Not in the everyday running but in broad-brush terms – they thought it would help them do it.”
And then there is the issue of other key territories. Asos sees so much potential in other overseas markets that wasting resources and energy on a market that was not providing returns seemed illogical.
“They may have taken the view in the medium term that they were losing a lot of money and that that might continue for five, six, seven years,” says Stevenson. “There’s so much opportunity elsewhere, like accelerating their US distribution offer.
“They may have thought that was a better option than fighting it out in China.”
Asos will continue to sell to Chinese shoppers through its main English language website, and some believe it may yet have a second bite at establishing a dedicated Chinese business.
“They may well go back there,” one source said. “In a few years they may have another go.”
If it does, at least its initial foray, although loss-making, will provide lessons in the future.