ASOS should feel like your cool best friend.
That’s the aspirational mission statement by CEO Nick Beighton for UK e-commerce champion ASOS, but it’s fair to say that it’s one that’s taken a bit of a beating in recent months. In common with other fashion retailers, the online company has seen a sharp decline in sales as customers don’t decide to stock up on new clothes during lockdown - up to 25% down year-on-year over the past three weeks - while it’s also been at the center of the increasingly fraught debate around the idea of back-end warehouses being potential hotbeds of viral transmission.
Both present significant challenges, but from a wider public health point of view, it’s the latter that’s proved to be particularly problematic for the brand. ASOS isn’t alone in dealing with this challenge - Amazon has seen workers walk out of its facilities in protest at what they see as unhealthy labor conditions, while NEXT has only today managed to re-open part of its online operation after warehouse staff raised objections and forced a temporary shuttering.
But ASOS has ‘form’ when it comes to controversy over its warehouses and the working practices/conditions therein, allegations that the company has strenuously denied over the years. But the latest accusations are particularly problematic with 90% of staffers polled by trades union GMB saying that they feel unsafe at work, leading union organiser Deanne Ferguson to allege:
The situation at ASOS is disgusting – thousands of people under one roof, not enforcing social distancing. It looks exactly like a hot bed of infection – and workers are very scared.
To date, all ASOS warehouses are operational and Beighton is adamant that “we’ve reflected strict social distancing measures in all centers”, which has, he notes, resulted in reduced capacity. He cites the UK’s Barnsley, Yorkshire facility as a case in point to defend ASOS's position:
Over the last 3 weeks, either myself or a member of the exec team have been in daily dialogue with Central Government and also the local Barnsley Council. So we're very clear we're operating under their guidelines. We're very clear we're operating with under the public health guidelines…the staff on site in Barnsley can see the actions we have taken on social distancing. It's been signed off by 3 separate visits by the Barnsley Environmental Health Officer. We're doing our work in Barnsley with the approval of the local union being Community union, which is a recognized union, and also the leader of the Barnsley Metropolitan Council. So all of those things have been put into place, and we're seeing very little uncertainty from our staff base or any pressure to close internally.
It should be noted that while Community certainly hasn’t taken quite the same tone as the GMB, its last public statement on the subject on 31 March wasn’t a ‘get out of jail card’ by any manner of means:
We have been working with our members and the company for weeks to make improvements to the way the site operates, including introducing PPE and a new cleaning regime. We have been on site all day yesterday and have been there again today listening to our members’ concerns and instructing the company to take further action to improve safety, particularly around shift changes. If these changes cannot be implemented effectively and rapidly, then they should cease operating.
So what changes has ASOS made to its operations in light of the Coronavirus crisis? As Beighton noted, the company’s warehouses around the world are operating, but there have been increased operational challenges as more territories entered lockdown. Border restrictions in Europe have caused some hiccups in the labor pool for the firm’s Euro Hub in Berlin with absence rates are up across the firm's three major hubs as workers self- isolate.
There’s still risk of sourcing disruption. Exposure to China isn’t felt to have material impact and Chinese supply has now returned to normal albeit with some additional freight cost, but the European supply chain is being monitored closely. A small number of suppliers have temporarily closed, while others are operating at reduced capacity
There have inevitably been difficult calls to have with suppliers. Beighton says:
We've clearly turned down a number of a large proportion of our intake on both ASOS design and our third-party brands. A number of our partners in various territories have also gone on to a short-term shutdown, like Mauritius and some aspects of Turkey…We try to be as respectful as we possibly can with all our suppliers. We did not send a blanket e-mail. We actually manned the phones and went through the buying and retail channels to speak directly with each supplier…The buyers are still placing orders, of course, and we've made some cancellations where necessary, but done it respectfully.
As for consumer demand, bearing in mind that collapse in sales, CFO Mathew Dunn points to Italy as a suitable use case for the firm’s modelling of demand and recovery. There was, he says, a “demand shock” around the 8th of March as Lombardy and then the whole of Italy went into lockdown:
This clearly reflects customers adjusting to the realities of lockdown with their priorities lying elsewhere. However, we can then see customers respond first to demand stimulation with a stronger uplift from our promo events, followed by a gradual improvement in trading through the closed lockdown period…the initial impact of lockdown was evident in both visits and conversion. As the demand impact starts to moderate, that traffic recovers with ASOSs.com undoubtedly remaining a key part of consumers' lives. However, conversion remains subdued, reflecting ultimately the reduction in need for our product. And we would probably expect conversion to remain subdued throughout the lockdown period.
He adds a caveat that Italy might be suggestive of a slightly stronger uplift profile than other territories due to a combination of lower online penetration and the closure of local businesses, but the expectation is that a similar consumer behavior pattern will take place in the UK, France and Germany. The US is bearing up so far:
Despite still being receptive to demand stimulation, the moderation of decline is looking more subdued at the moment. This may reflect the more pronounced economic impacts on our consumers here where government protection measures are less supportive for them in general. Whilst it is useful to see this pattern, it is important to stress that we are only 3 to 4 weeks into this crisis, impacting our demand and that these trends may not be indicative of what is to come.
Beighton argues that that there is consistency to be seen in how the Coronavirus impacts takes shape:
It's been consistent across all the European territories. Whereas each territory seems to be on a different part of the curve, depending on when social restriction is implemented, traffic goes down initially and then starts to come back. We've actually seen [visits] last week and the week before in line with what the visits were weekly, prior to the pandemic. We have seen a lower conversion rate, however, through that cycle. And interestingly, we've also seen a lower returns rate pretty consistently across that.
The lower returns rate can be attributed to a shift in what is actually being bought. Dresses, suits, party clothing etc aren’t top of many people’s shopping list right now, whereas jogging pants, sweat shirts, lounge wear and exercise clothing in general are holding up - and come with lower returns rate potential anyway.
In terms of getting its wares in front of consumer eyes, the company has tapped into digital tech to keep things afloat. Beighton explains:
Clearly, social distancing meant that some of the activities in our studios, which was the bottleneck in getting some product live through the new regime, was tricky. So we've ramped up our technology, which we trialed earlier in the season, and that can put around 1,000 products live. We've implemented flat shots that are starting to feed through now. So there's less styling, less hair and makeup of models.
We've got ASOS at Home, where models are styling themselves with webinar interaction with our stylists and they're publishing content accordingly with our view. So that's been really good. And we've got contingency studios in Lewiston now, so we've got 10 studios there, too. We've got another contingency studio. So we've got multiple options to create content and newness of product.
The real impact of the current health crisis on ASOS has yet to be seen. Last week it released its half year numbers, up to the end of February, which saw a 21% year-on-year rise on sales, beating expectations, while pre-tax profit was a high of £30.1 million. But all of that was before lockdown kicked in in March in the UK and other parts of Europe. The company has financially shored itself up with by raising a war chest of £247 million through a share release and is tapping into the Covid Corporate Financing Facility launched by the Bank of England.
But there’s a lot of uncertainty ahead, not least the question of how well the firm will manage to pull off knowing when to stock up and in what quantities. That depends on when demand returns and where it returns to, both geographically and in terms of what products the company needs to have on its virtual shelves.
And of course it also needs to get ahead of the warehouse controversy, convincingly and fast, both in terms of supporting public health initiatives and limiting brand damage if it’s ever going to be “your cool best friend” again. To its credit, the firm has announced a number of Coronavirus positive actions, including offering logistics capabilities and warehouse space to Barnsley, Sheffield and Doncaster councils to support their local NHS efforts, such as providing storage & distribution services for around 1 million units of scrubs, masks and bedding across South Yorkshire.