UK online retail champion ASOS sees benefit of Brexit
- Summary:
- Brexit is going to destroy the UK retail sector, say the armageddon pedlars. Not according to online fashion champion ASOS, which sees Brexit as offering some potential short term benefits that elude rivals such as Marks and Spencer.
In what’s likely to become a repeated meme over the coming weeks, city investors were, we were told by the mainstream media, looking to online fashion retailer ASOS for confirmation of the negative impact of the Brexit vote when it turned in its latest numbers this morning.
In the event, the doom-mongers were to be disappointed as ASOS, which was launched in 2000 and targets predominantly consumers in their 20s and 30s, saw overall sales by 26% in the four months to 30 June. Sales in the UK were up 28%, while US sales surged by mighty 45%. Sales in the EU were up 22% while the rest of the world was up 16%
Total sales for the period were £500.5 million, up from £386 million for the same period last year, while the number of active customers bounced 24% to hit 12 million worldwide. Some 70% of orders with ASOS are now placed via mobile devices.
Indeed, the only downbeat note to be struck was confirmation that May’s decision to shut down its China website left ASOS with a hit of around £10 million.
Chief executive Nick Beighton says it's too early to predict what the long term consequences of Brexit would be for the UK and ASOS, but for now there’s an upbeat outlook:
Given the increased momentum within the business, combined with our strong financial position, we will maintain our successful programme of reinvestment to take advantage of the opportunities currently available to us.
Around 55% of our customers are non-UK and so in the short term the exchange rate weakness will give happy consequences for our customers.
Our sales prices which are denominated off sterling now look cheaper to the U.S. customer and look cheaper to the European customer. What we think that will give us is a greater sales trajectory.
It’s a theme picked up on by self-styled ‘investment supermarket for private investors Hargreaves Lansdown, which notes:
Although the vote to leave the EU could have an impact on consumer confidence at home, the UK only makes up around 40% of ASOS' revenue.
Unusually for a clothing retailer, ASOS pay around 80% of sourcing costs in Sterling, which should offer the UK business some insulation against the pound's weakness. In fact, the group's overseas operations should provide a currency benefit as rates are now more favourable for converting revenues earned in Dollars and Euros into Sterling.
If it can keep its competitiveness sharp, there seems little reason to think that ASOS is going to be constrained in its growth by anything other than its own ability to manage the pace of expansion.
Looking further ahead, Beighton can see potential Brexit bumps in the road, but intends to invest his way through them:
I'm sort of expecting difficulties with cross border trading with things like tariffs, our response is to take the short-term benefit from the exchange rate and re-invest it back into the customer proposition, build a bigger business, so when those tariffs and/or difficulties become clear, we're in a better place to soak it up. We will invest quicker and harder in customer proposition.
The firm has already upgraded its fulfilment proposition with introduction of Precise, a new option allowing customers to choose their own one-hour delivery slot. between 11am and 5pm in the seven days after they order. Up until now, ASOS customers have not been given a choice and are notified by text or email of their next day, one-hour delivery slot.
ASOS has also invested in warehousing facilities in Berlin, due to open in February next year, which Beighton hopes will be an asset for ongoing trade with the European Union:
With that warehouse in Berlin, which is the same size, and has the same automation and processes as the Barnsley [UK] warehouse, we will effectively be fulfilling within the European Union, even if the UK comes out.
Online v offline
The performance at ASOS, which has no physical high street presence, is in stark contrast to fashion rivals such as Marks & Spencer, which last week in part blamed Brexit uncertainties for its latest poor numbers. Chief executive, Steve Rowe, said:
Consumer confidence weakened in the run-up to the EU referendum. While it is too early to quantify the implications of Brexit, we are confident that our strategic priorities and the actions we are taking remain the right ones.
The latest British Retail Consortium (BRC) -KPMG survey, published today, shows that like-for-like sales across the UK retail sector fell by 0.5% in June compared with a year ago, largely due to a fall off in clothes shopping rather than anything directly attributable to the 23 June Brexit vote.
Helen Dickinson, BRC’s Chief Executive, comments:
While sales did slow towards the end of the month, it is too early to define this as a trend. The month outturn was predominantly driven by a decline in sales in the fashion categories and isn’t a surprise given that June 2015 saw record growth in clothing and footwear.
Britain’s retailers remain open for business. The EU referendum vote has not changed their relentless pursuit of delivering for customers day in, day out or their investment in meeting the needs of fundamental changes in the way people shop, driven by digital and technology.
Interestingly while May’s monthly report saw online sales up 13.7% year-on-year to hit the third highest on record - after Black Friday in November and the January sales - June saw digital growth slow to single figures (9%). That said, online accounted for a fifth (20.6%) of overall retail sales in June. Dickinson says customers are increasingly acting as genuinely omni-channel consumers:
While online clearly remains the primary driver of sales growth for UK retailers, shoppers are no longer thinking in channels and are more and more often using both digital and physical stores as part of their customer journey from initial consideration to the actual transaction. Today’s figures re-emphasise the need for physical stores to be a destination for retail experiences rather than specifically and solely for the sales transaction itself.
David McCorquodale, Head of Retail, KPMG, adds that much may depend yet on the Great British Summer, which has proved essentially dismal to date:
While the ramifications from the Brexit vote may well affect consumer confidence, retailers will be hoping the long-promised heatwave and potential stay at home holidays will be enough to drive shoppers back to the high-streets over the months ahead.
My take
We’re going to hear Brexit trotted out as an excuse for a lot of poor performance over the coming months. Some of this will be true, some of it will be an expedient ‘blame hound’ for more endemic problems. For example, Marks & Spencer’s continuing failure to meet the expectations of the omni-channel shopper and its dreadful clothing sales numbers are more likely contributors to its latest fall in sales.
It’s interesting that UK retailer John Lewis, which publishes weekly sales updates and as such is seen as a barometer of sector performance, reported a downturn in sales in the week immediately following the Brexit vote, which has now turned around. Yesterday we noted that the sky might yet be falling, but for now it’s falling slowly and consumers may be realising that the armageddon pedling may have been panicking.
As for ASOS, genuinely impressive numbers and a company in a prime position for growth. It’s nice to be able to report a UK success story in these febrile times.