All eyes on Black Friday as ASOS boss insists the worst is over after 68% full year profit collapse

Profile picture for user slauchlan By Stuart Lauchlan October 16, 2019
Summary:
Digital retailer ASOS has had the worse year of its life so far, but CEO Nick Beighton reckons that the pain of 2019 can be put away.

ASOS

I think there is a very unsettled customer environmental out there. There is an awful lot of global uncertainty for the consumer.

That’s the retail perspective on offer today from Nick Beighton, CEO of online pureplay ASOS. What he might have added is that there’s a lot of global uncertainty around his firm, a UK e-commerce success story that’s had the bumpiest 12 months of its life.

The company has just announced full year numbers that reported a 13% year-on-year increase in sales and a pre-tax profit of £33.1 million, which doesn’t sound too bad until it’s realised that the profit is 68% down on last year.  That’s on the back of two profit warnings over the past year and a collapse of almost 60% in the company's value.

Breaking down the numbers. UK sales were up 15% to £1 billion, while other EU countries delivered a 9% sales boost. US sales were up 4% to £843.5 million.

In a statement, Beighton says:

This financial year was a pivotal period for ASOS, where we have invested significantly and enhanced our global platform capability to drive our future growth. Regrettably this was more disruptive than we originally anticipated.

However, having identified the root causes of our operational issues, we have made substantial progress over the last few months in resolving them. Whilst there remains lots of work to be done to get the business back on track, we are now in a more positive position to start the new financial year.

Our focus now shifts to ensuring that we enhance our capability to drive an improved customer experience and leverage the benefits from the investments we have made. With over 60% of our revenue coming from international customers and a strong global logistics platform with capacity to grow, we are well positioned to take advantage of the global growth opportunity ahead of us.

Behind us? 

The problems faced by ASOS have been essentially self-inflicted. The company suffered from a series of IT snags in Germany and problems in the US when its new hi-tech Atlanta distribution warehouse suffered from stock shortages. Beighton concedes:

With hindsight we were too ambitious in tackling two international warehouses at the same time and our internal capabilities and bandwidth hadn’t kept pace with the changing scale of our business.

But he argues that 2019’s issues can be put behind the firm. EU next day cut-off ordering times are now extended to midnight, while the US warehouse is is now reporting next day delivery to key cities. Beighton says:

From a warehouse perspective our Euro Hub automation issues are now resolved, the US hub operation is stable and capable of scaling to a much greater level.

With Black Friday weekend looming, ASOS execs will be hoping for a better performance than last year when it set prices too high and watched as customers went off to shop elsewhere. Beighton insists that the firm is “much better set up” this year:

We’ve got our eye back on the ball. We have capacity in place that we did not have this time last year.

The company has also announced a drive to pull in new talent to help manage international expansion, Including a new non-executive director in the shape of online grocery firm Ocado executive Luke Jensen. It’s currently looking to add a Chief Growth Officer, Chief Commercial Officer, Chief People Officer and a Chief Strategy Officer. 

Global to-do

In the meantime, Beighton and team might do worse than check out the second International Retail Index, from Retail Week and Loqate, which sets out to identify best practice for retailers expanding overseas. Despite this year’s problems, ASOS actually ranks pretty well in this, fourth placed after Amazon, IKEA and H&M. It comes in above Apple, a ranking based on its ability to deliver to customers rapidly.

The Index cites 5 Do’s and 5 Don’ts for retailers.

Do:

  • Treat international development as an opportunity.
  • Offer language and currency options in order to build local confidence.
  • Develop a global social media strategy around key platforms and plan how to build engagement across them.
  • Personalise and think about local market needs as well as those of individual consumers.
  • Look for best practices outside of your usual peers.

Don’t:

  • Be trapped by thinking local; think beyond a physical presence as competition  can come from anywhere.
  • Expect the pace to slow down; keep moving and flexible.
  • Bet on customers doing the work for you; make their experience as easy as possible.
  • Expect international shoppers to wait; delivery times/speeds matter.
  • Be too cautious so that you don’t experiment and take risks.

My take

ASOS simply didn’t look or feel as good as it should for our customers.

Beighton was in full mea culpa mode this morning as well he might be. That said, investors seem to believe that the worst is over now as the ASOS share price rose by 16% on news of the full year numbers.

That said, ASOS emerges from 2019 with its reputation badly damaged and once online customers wander off elsewhere, it’s notoriously hard to recover them. The firm needs a damn good Black Friday/Christmas if it is to enter 2020 with proof that the confident message it’s pitching is justified.