ASOS and M&S - a tale of two brands in a digital retail world

Profile picture for user slauchlan By Stuart Lauchlan July 7, 2015
Summary:
Digital native ASOS is shaking off its problems, but digital immigrant M&S is weighed down by offline problems.

ASOS
Digital Native

A tale of two British fashion retailers - one a digital native that’s reaping the benefits of mobile investment, the other one of the UK’s most potent high street brands that just can’t seem to get its act together in an omnichannel world.

The first is ASOS (As Seen On Screen); the second is Marks and Spencer (M&S).

While there’s a case to be made that online fashion retailer ASOS has succeeded in one of the few areas of ecommerce unconquered by Amazon, it’s fair to say that the firm has had its share of problems to overcome of late.

These included profit warnings linked to losses in its fledgling Chinese arm, a warehouse fire that cost £30 million and margins that are under constant pressure due to the firm's business model of  heavy discounting of clothing.

At the end of May the firm also suffered from a ‘Black Friday’ style crash as its website buckled under demand for a 20% discount on “Every. Single. Thing.’.

In a bid to get back on track, the company ten months ago announced a 2 year turnaround strategy, that includes significant re-platforming of its underlying and mission-critical technology, including a significant investment in mobile.

ASOS has now implemented “zonal pricing” software to enable it to charge different prices around the world and adapt to exchange rate fluctuations. Promotional activity has also been reduced with its summer sale starting a week later than last year.

While work is still ongoing, there are signs that things are beginning to improve.

Yesterday ASOS reported its third quarter results, revealing a 20% increase in total retail sales to £386 million. UK sales climbed 27% to £158.4 million, while international retail sales - 59% of total sales - were up 16% to £227.6 million for the four months to 30 June 2015.

ASOS said it now counts some 9.7 million customers across the UK, US, Australia and European market, up 11% year-on-year.

ASOS's websites attracted 98 million visits during June 2015, compared to 71 million in June 2014. And that mobile platform investment is paying dividends, according to CFO Nick Beighton:

Customers using mobile, particularly smartphones, who engage with our proposition continued the pace. We are now at nearly 60% of the overall direct sales represented by mobile.

He added:

Interestingly the mobile and the app development is one of the key elements that's driven much greater, much stronger traffic growth and fitting with the way customers want to engage with it.

Those things are really important to our business. Desktop traffic will be in decline year-over-year. Mobile traffic is growing disproportionately, it is now around 60% of the overall group traffic and the sales are quickly catching up behind that.

So I think mobile is pretty important in terms of the channel and the way customers want to react, but actually if the proposition doesn't suit the way they want to shop, if the product's not strong enough at the right price those things tend to be fall a little bit flat.

While there’s still a lot of work to be done - with CEO Nick Robertson describing the IT re-platforming as akin to painting the Forth Road Bridge - retail analysts saw progress being made. Numis analyst Andrew Wade commented:

While still only 10 months into ASOS two year repricing journey, we are seeing clear positive results and a business which has regained its momentum. We retain our positive stance, confident that ASOS has a unique proposition.

Meanwhile at M&S

Analysts were considerably less forgiving about M&S. Shares in the retailer fell 2% after it announced that sales of clothing and homeware had slipped 0.4% at established stores in the three months to 13 June.

M&S
Digital Immigrant

The firm came under attack from one of its own former clothing designers at its annual shareholders meeting. To the acute embarrassment of the current executive team, Muriel Conway, who spent 25 years designing womenswear for M&S until the late 1990s, told them to their faces:

I could weep at what I see in stores today. Where’s the originality, flair, newness and good taste? “[Former M&S chairman] Lord Sieff must be turning in his grave. He used to say to me, ‘The day you lose your core customers is the day you lose your business’, and he was right. Not only have you lost your core customers, you have alienated them. They don’t even bother to shop any more. We women have not changed. You have changed. You have lost your identity.

Ouch!

That said, there was a bounce in online sales in the most recent quarter, which rose 38.7%. That’s in start contrast to a year ago when M&S struggled with problems with its revamped website and new distribution center.

But the firm has had to restate its online sales for the past four years, knocking £500 million off the previously published numbers. According to reports, the firm’s old logistics systems weren’t able to track an in-store return of a product bought online from the website. So the published figures did not account for those returned items.

Interestingly, the firm this week ramps up its free click-and-collect service, available now in 200 of its own stores, to more than 100 of its franchised Simply Food outlets in motorway service stations, railways, hospitals and airports, in a bid to encourage more online shopping.

Last month rival John Lewis said that it would start charging customers £2 to collect online orders under £30 in store, citing "unsustainable" and "bonkers" online click-and-collect business models.

David Walmsley, director of M&S.com, however insists that the model works for M&S customers:

Store collection is incredibly popular, with over half of orders picked up from our stores.

By extending the service to locations such as railways and service stations, which may form part of customers’ daily journey, we hope to make it even easier and more convenient for them to shop with M&S.

But overall, it was another depressing set of numbers from one of Britain’s oldest retail brands. As John Ibbotson of retail consultancy Retail Vision, said:

However you dress this up, it’s still not good enough. It’s make or break time for M&S. No amount of restructuring and transformation of IT and logistics will be enough if clothing sales don’t improve soon.

My take

The digital native and the digital immigrant - each with their own problems. But it's a lot easier to see how ASOS addresses its issues than it is with M&S.