A timely reminder that however important digital transformation and omni-channel strategies might be, it’s essential not to forget that retail success hinges on having the right products to sell that customers want to buy.
So when ASOS CEO Nick Beighton highlights the disruption to the e-tailer’s operations caused by new tech being introduced as contributing to an 87% year-on-year crash in profits, it’s a rather more prosaic comment that catches the eye:
We should have stocked more animal print skirts.
The problems that the UK e-commerce success story has run into of late have been well-documented and the current situation was flagged up last month, with the result that investors haven’t been spooked despite half-year profits collapsing from £39.9 million to £4 million. Sales were up 14% to £1.3 billion.
But while the financial community clearly still has faith in the firm, there are issues around restoring customer trust that need to be tackled in short order. Looking back over the past few months, Beighton says:
ASOS simply didn't look or feel as great as we normally do.
There has been a slowdown in customer acquisition and this comes back to the product question, says Beighton:
Our propositions are still market-leading or as good as local in most of the major territories. So I don't think that's been the main issue. I think the main issue on the slowdown in customer acquisition, particularly, the younger demographic, has been around our presentation - product width, product newness. And so that's what I mean by …not quite looking as good and feeling as good as it once did. I think we're on that now.
It was problems with ASOS’s new Atlanta warehouse in February that let to the firm under-estimating demand on its US website, leading in turn to a backlog of orders and deliveries that didn’t turn up on time. Getting the back end stable is a priority worldwide, says Beighton:
Over the last few years, we developed a formidable logistics capacity or capability. And this is about to start contributing to the customer experience in a different and increasingly potent way. Our facilities are in different phases. The US is now stabilized. EU automation about to go live. UK is in an optimization phase, and the return centers are driving efficiencies. In summary, we have 3 custom-built probably state-of-the-art fulfilment centers in 3 of our most valuable territories, UK, EU and US, and several returns processing centers, mostly in lower cost operating territories and in an increasing efficiency and optimization phase.
Logistics now accounts for 17% of ASOS tech spend, behind customer experience which eats up 40%. That spend is split across e-commerce platforms and data platforms, and also takes in AI product enhancements, sizing, recommendations and AI personalization.
As for that lucrative US market, Beighton remains confident that the recent issues have been a bump in the road rather than a long term problem:
The opportunity for ASOS ahead of us is simply huge. And some of our recent experiences have given us greater confidence in that. The US clothing market was worth nearly £400 billion last year, with online representing around £80 billion. Online penetration is currently 21% in the U.S. and climbing quickly with market forecast that this will be close to 29% within the next four years. So, 70 million, 20-to-34 year old girls and boys in the US, of which we're confident of sizeable number of fashion loving and potential customers for ASOS. In the US we already have 2.6 million active customers and we've grown our business around $400 million already. And this has been done without deploying significant cash flow in infrastructure or in technology.
The stabilisation of the Atlanta warehouse facility means that ASOS will be able to start what Beighton calls “the next phase of our growth in the US”, based around “clustering technology”. He explains:
In essence, we're using our technology to better target our customers and provide the best possible localized product content and social media. Up to now, we treated the US as one country, offering customers from New York to LA and Chicago to touch with the same experience, the same content and the same delivery propositions. Yet there are 4 time zones, 9 climatic regions across 50 states with dramatically different cultures, interests and expectations. We would never offer a uniform experience to our European customers in France, in Italy, in Spain or Germany.
Our clustering technology will address this. We're offering initially up to 6 localized web experiences, mobile and website and which will be dependent and serve depending on your time zones, ZIP code and climatic conditions. Our clustering tech will be deployed in May, and from there on, we begin significantly enhance our delivery propositions. We're talking next day delivery to Atlanta first New York, LA, San Francisco and Austin in Texas.
Never let it be said that Beighton is easily bowed or broken. ASOS has had its share of problems of late, made more stark by previously stellar performance, but the CEO remains assured, to the extent that despite the profit collapse, the firm isn’t altering its full-year guidance. Beighton argues:
When you've had a difficult few months, it's sometimes easy to forget the opportunity or the addressable market ahead of us. We're not losing sight on this prize…Our view of the total addressable market and the global opportunity for ASOS remains unchanged and the shift on lines continues at pace. The online global market will be worth at least £220 billion and it will be rising. And we are confident that we're well-positioned in the right channels and with the right capability to access our share of that market…Our long-term ambition for the potential of the business remains unchanged.