Back in the past, Asos stood for “As Seen On Screen”, but now it seems to stand for “Amazingly Strong Online Sales”…
Back in the past, Asos stood for “As Seen On Screen”, but now it seems to stand for “Amazingly Strong Online Sales”.
For much of last year the picture at Asos seemed to be that the core UK business was reasonably mature and growing at “only” about 10%, with all the action coming from the much faster sales growth in International markets, on the back of the launch of country websites and local management teams.
However, the UK operation has been surprising on the upside in recent quarters and it has surprised again today, with Asos announcing 49% UK sales growth in its Q4 (to the end of August), which is pretty staggering and actually ahead of the International growth of 47%, for the first time in ages (with the burgeoning business in Australia temporarily held back by the economic slowdown ahead of the Election).
High street fashion retailers are notorious prey to the whims of the great British weather and even as well managed a business as Next found itself a bit short of summer stock in August, after the heatwave bonanza of July. But Asos’s global stock pool is designed to cater for the fact that somewhere in the world it will be hot and sunny in July and August and it therefore took full advantage of having summer ranges in stock in the UK and sold many of them through at full-price.
Women’s dresses in particular sold like the veritable “hot cakes” and the only slight blot on the landscape for Asos was that the order returns rate is always high in this area, but achieved gross margins were still massively improved overall.
Asos may therefore have got lucky with the UK weather in the summer, but UK sales growth has been accelerating quarter by quarter (the sequence over the last six quarters is now +8%, +15%, +24%, +28%, +39% and +49%), so there is clearly a lot of good things going on in the business to drive new customer growth and increase existing customer spending.
The fact is that Asos have worked very hard to improve the content and value of its UK range (in womenswear and menswear), they have marketed it well through digital channels and they have invested in further improving next day delivery options, so the success in the UK is coming from a combination of all this activity, although it is surely asking too much for sales growth in the current quarter to accelerate from 49%.
Funnily enough, another big UK fashion retailer also saw online sales growth of about 49% in the summer and that is Debenhams (as its cumulative online growth went from 44% after 42 weeks of its financial year to 46% over the 52 weeks to end August). Debenhams’ online growth is certainly impressive and it is to present its multi-channel strategy in more detail to the city on October 3rd. Online now accounts for over 14% of its total sales, but the problem for Debenhams is its “bricks and mortar” store portfolio and the fact that store LFL sales fell by about 2.5% in the summer helps to explain why its overall profits are going nowhere.
Asos, of course, have no such physical and costly encumberances as “stores” or showrooms and its only problem is making sure its distribution and warehouse system can keep pace with the demand from customers. Global retail sales reached £754m in the year just finished and the much vaunted £1bn sales target looks like being reached over a year early, which prospect seems likely to keep its heady stockmarket rating intact.
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”.