ASOS suffers from GDPR indigestion with U.S. sales tax issues still to swallow

SUMMARY:

GDPR brought a flood of emails into in-boxes and that caused some traffic sluggishness for ASOS.

Medicine
Time for some GDPR Pepto-Bismol?

Sales are still on the up, but online fashion retailer ASOS has hit a bump in the road, thanks in part to GDPR and with the uncertainties around the U.S. Supreme Court ruling on sales tax looming over expansion plans.

On the face of it, things look pretty healthy. For the four months to end of June, UK retail sales were up 23% from £234.6 million to £288 million, sales in the European Union (EU) rose 31% to £257.4 million, while U.S. sales were up 15% from £94.4 million to £108.1 million.

But the firm has warned that full year numbers are going to come in at the lower end of expectations. There are a number of issues at play, not least a slowdown in U.S. activity while bringing on-line  new warehouse operations.

And then there’s the impact of the General Data Protection Regulation (GDPR), which combined with more infrastructure work, this time in Berlin where the firm’s Eurohub 2 was damaged in a fire last year.

ASOS CEO Nick Beighton admits that EU business has been “a bit more muted”, arguing:

I think the key trend there was around managing a different aspect of growth around our infrastructure and customers getting used to the new customer consent [GDPR requirements].

In fact, ASOS had its GDPR act together in plenty of time, but the firm’s decision to deal with its implications outside of the EU, with the exception of North America so far, seems to have come with a cost. Beighton says:

GDPR legislation was predominately for the European territory so it’s born out the European legislation. We took review of it…but actually customer data is very important and something that you have to treat with respect and care. So we took the view to implement new customer journeys for every customer in every territory with the exception of the U.S.

So what we did is implement new customer journeys, explained exactly what we did with that data…all we knew is, improve the user experience, improve the awareness for our customers’ journey. But we took the view to explain that very clearly, very openly and you have seen that through all our apps and websites accordingly.

But change, even when well-intentioned, brings its own bumps in the road, he adds:

Your in-box would have been full of consent messages. There is a little bit of indigestion for customers to understand the impact.

That indigestion sees to be clearing through. While June’s traffic numbers were slower, July to date has seen a “much greater run rate”, which leads Beighton to conclude:

I can see our customers have got used to the impact, which is at the end of May, understanding the consent journey better and showing a different level of engagement post June.

This was a short-term hiccup, he argues:

I think these are temporary blips as customer journeys change. It’s like landing a new website. We just have to get comfortable with the new journey, and we have to get comfortable with what GDPR means. And so, once we got comfortable with all of those and [customers] cleared their inboxes of consent [requests], then I think it will just be a temporary blip.

Sales tax to come

But if GDPR is largely behind ASOS, ahead of it is the unresolved issue of what happens in the U.S. following last month’s decision by the Supreme Court around online sales tax.

Existing legislation said that online retailers did not need to collect sales tax when there was no physical business presence in the state, which bricks-and-mortar retailers said provided an unfair competitive advantage. Now individual states can insist on collecting sales taxes territories where retailers do not have a physical presence.

It’s going to be up to individual states to decide whether to enforce this, in the absence of any Federal Government action in the near term, but Beighton takes a pragmatic – cynical? – view:

You know as well as I do that globally our governments are looking for increasing their tax stake. So we should expect that to be a constant going forward.

But the Supreme Court decision has left questions and fresh uncertainties in its wake, he notes:

In the U.S., South Dakota have declared how they’re going to manage sales tax in their state. There are a number of other states who have said, ‘yes, we think that’s a great idea’. Why wouldn’t they? But the other states have to align the tax base similar to South Dakota. And that means the counties have to have a common sales tax, which is not always the case. When they do all of that I’m expecting more online sales to be levied as a sales tax…I’m expecting that to be something that comes through over the next period of time, the phasing of which I do not know.

But ASOS will be ready, he declares, for whatever timescale across which this happens:

In many states at the moment where we have a nexus which was [based on] the old rules, which was based on physical footprint, we currently suck up that tax on behalf of our customers. Now we’ve built the technology to deploy whereby we will pass on the sales tax and make it very clear at the point of check out for customers like every other U.S. retailer

We’re ready with our technology. We’re clear about how we’ll deploy it. It’s up to the individual states to align that tax base to the ruling of South Dakota. So as and when that becomes the way each state wants to trade, we will of course respect and honor that.

None of this makes the U.S. any less of an important target market for international expansion on ASOS’s part. Far from it, insists Beighton, despite the traffic slow-down caused by the infrastructure rollout work:

We will be ramping up in the U.S. far quicker than we’ve ramped up any other piece of infrastructure. But you do it sure footedly. Going too fast or too early doesn’t help anybody. So you build the capability, you get confident and then you follow the demand with more working capital. You ramp up the people accordingly, improve the technology.

So we’ll be ramping up in the U.S. faster than we’ve ever done with any private piece of infrastructure because we’ve got better at it and the things we’re putting there are more proven.

My take

Even the most successful rocket flights run into some turbulence. The issues that ASOS faces in the short term are essentially just that – bumps.

The GDPR issue will fade away – and if ASOS is experiencing it, then we can expect to see many more online businesses trotting out those four little letters a lot when turning in their own numbers this year.

As for the sales tax issue in the U.S., as Beighton notes, it’s a case of wait and see and be ready for what comes next. For what it’s worth, ASOS has a strong proof point in place in the shape of its ability and readiness to meet Australia’s introduction of sales tax which has just kicked in.

 

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