Following Shop Direct’s latest pre-tax profits increase, how has the etailer gone from a catalogue company to digital department store?

As Shop Direct’s latest pre-tax profits soared by more than 500 per cent, profits at ASOS fell by 14%.  ASOS, ‘the world’s No.1 online fashion destination for 20-somethings’, has also issued three profit warnings, attributing its difficulties to major investments in warehousing and its new business in China.  Its share price has tumbled from a peak of 7050p to 1785p in October this year.  How has the darling of the internet-enabled retail shopping sector fallen behind what was once an old fashioned catalogue company?

Shop Direct is very clear in its branding – each of its brands says exactly who they are designed for: states clearly that it is for the style conscious, K+Co helps people on tight budgets with its ‘clever shopping system’, Isme is for the over 50s. Overall, Shop Direct aims to be ‘the UK’s best loved digital department stores’.  It seems to be winning as its turnover in the UK is £1.74 billion compared with that of ASOS at £975 million.

It’s not that their investments in technology seem that different and ASOS claims to be the second most visited fashion website in the world.  All sales at ASOS are online, as are 85% of sales at Shop Direct are online although the Littlewoods brand still offers catalogue shopping.

A large proportion of the Shop Direct revenue is via mobiles and tablets – 44% last year, and a game changer for the company.  Its fundamental strategy is to focus on its customer relationships by offering personalised homepages and navigation and offering the right brands at the right prices. During the past year Shop Direct has started to offer its customers a greater choice of goods, adding brand names such as River Island, Sonos and Radley.  Next year it will launch a new up-market brand called ‘Very Exclusive’ which will add 150 high-end brands and is clearly targeted outside its usual demographic.  The company is also the first UK retailer to offer an in-house user lab for its customers to test ideas, new technologies and website changes so that it receives feedback direct from its customers.

A company’s biggest asset is its customer relationships and, rather than looking at its short term profits, Shop Direct is focusing on the long term. It is making a significant investment in its data analytics capability, including funnel analysis and customer lifetime value modelling.  Although it already ‘personalises’ on a macro scale by offering clearly defined brands, this investment will enable it to personalise the customer experience further, matching its offer even more closely to its web visitors and increasing retention.

In contrast to Shop Direct’s approach of investing in innovation, ASOS has responded to tough times by cutting prices and profit margins are down.  With changing market dynamics and highly competitive conditions, time will tell whether this reversal of fortunes is permanent or temporary. 

The all important Christmas period is just around the corner but 2015 looks as if it could be a ‘Very’ interesting and profitable year for the retailer.

  • Dan Coen, director, Zolfo Cooper