ASOS e-commerce success continues even as Amazon looms large

SUMMARY:

Asos remains a UK e-commerce retail success story, but as every retailer knows Amazon is only one good idea away from kicking open the wardrobe doors.

UK retailers such as John Lewis and Marks & Spencer have cautioned about the prospects for the sector in recent weeks. No-one appears to have told online clothing firm ASOS that there’s a problem though.

For the four months to 30 June, ASOS revenues were up by 32% to £660 million. UK sales were up 16% year on year to £234.6 million, while international sales rose by 42% to £425.5 million during the period.

That leads CEO Nick Beighton to state that he’s seeing no slowdown in UK consumer confidence, despite Brexit looming:

We are not seeing any [sign]. We’ve had an increase in the frequency of purchases, the average basket size and conversion has all increased in the UK. Our growth is central to the continual shift from traditional legacy channels to online, which is now being driven by mobile.

Mobile as a platform now makes up 80% of all traffic in the UK and 70% worldwide. Asos shipped 16.9million orders in the four months period. Active customers were up by 25%, while average basket value was up 3% and order frequency up by 6%.

Beighton is adamant that ASOS will continue to compete on the basis of price:

We have made a big price investment and we are sucking up that inflation. We have held prices as planned. Overall the weak pound is a currency benefit to Asos as 60% of our sales are international. We held prices on our own label and we honoured any changes made by brands to their prices.

Amazon?

Despite the firm’s continued success, ASOS remains as vulnberable as any other retailer to incursion by Amazon. The latest potential threat comes from Amazon Prime Wardrobe, a new service currently in pilot mode that would allow Amazon Prime members to try on clothing, footwear, and accessory products at home and return unwanted items using a pre-paid, pre-addressed box.

That’s a model that effectively turns a customer’s home into a fitting room. It’s one that has been successfully used in the past by traditional paper-catalog-based firms, such as Grattan or Littlewoods, but it’s not something that has been prevalent in online apparel firms and as such is being touted by Amazon as a potential competitive differentiator.

Beighton seems phlegmatic about the prospect:

Our mission is to improve product and experience. We have discussed doing something like the Prime Wardrobe model in the past but for now our model is working so there are no plans to roll out something similar. We take inspiration from listening to our customers, experimenting and trying new things. We focus on 20-something fashion and that focus is a strength.

That being said we do look at what Amazon and other retailers are doing to see if there is anything we can learn, but we have been using the subscription model for a long time, it’s nothing new to us.

While ASOS’s share price was actually down on the good results, industry analysts remain confident in the firm’s prospects. George Salmon, equity analyst at Hargreaves Lansdown, said:

ASOS is something of a rarity in the UK retail sector. While weaker sterling and a more frugal consumer give UK-focused rivals sleepless nights, the group’s sizeable overseas sales means its management have no such worries. Indeed, the combined size of the EU and US markets means the international growth potential of ASOS is vast. The group already has a significant foothold in these markets, and its website and mobile app are attracting more hits every day.

My take

As I’ve noted before, ASOS is a UK e-commerce champion that’s succeeded in large part by having a strong international presence that’s proved very useful in the current climate of a Brexit-battered pound. It’s also spent wisely on technology and continues to keep innovating, with 300 technology upgrades or release over the past four months.

Can this continue? That depends not just on ASOS but on the competition, of course, and there’s clearly no room for complacency when Amazon has increasingly transparent fashion and apparel ambitions.

I’m intrigued by how much impact Amazon Prime Wardrobe might have. A lot of the success of that will depend on how effectively Amazon can persuade brands to use its channel to market rather than relying on their own. Many retailers, particularly at the luxury end of the market, remain instinctively suspicious of ‘sleeping with the enemy’, although there are signs that there is a mindshift of sorts here, such as with Nike’s recent Amazon distribution partnership.

Image credit - Asos