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ASOS ups its tech investment as international growth soars

Stuart Lauchlan Profile picture for user slauchlan April 11, 2018
UK retail e-commerce champion ASOS is upping its infrastructure spend as its international footprint grows.

The one thing that all retailers, traditional or online pureplay, know or are finding out is that building a digital roadmap requires investment in infrastructure - and ongoing investment at that.

Which is why ASOS is committing £250 million on building out its infrastructure this year. It’s also why investors took fright and drove down the share price despite very healthy half-year numbers. UK retail sales increased by 22% to £414.5 million, while international sales rose by 28%  to £716.8 million. Pre-tax profits of £29.9 million were up 10%.

It’s to those positive numbers that CEO Nick Beighton understandably points:

Within the UK, we’ve continued to perform strongly, again surprisingly on the upside. We’ve gained further market share in our home territory, which is really important to us. We’ve seen order frequency up 8% accompanied by some excellent growth in our premier customers at mainly 40%. This has been driven by improved availability, tons of proposition and products expansion such as Try Before You Buy, Face and Body, ASOS 4505 and improvement in premier delivery.

Within the EU, our active customers grew by 26% to on to taking us some 6.3 million customers, including 1.8 million active customers in France, 2 million in Germany. To underlying the success that what we’ve been doing in the EU and the response of investment we’re making over the period half of all the customers acquired are falling in the EU zone. Orders have grown by 38% alongside specific increases in frequency, in conversion, which particularly pleasing given the acceleration in mobile mix. 

And the U.S., a target market for expansion for the UK e-commerce firm, is also picking speed, he adds:

Our customer proposition in the U.S. is somewhat behind the EU and the UK, but we’re stepping on the investment there and accelerating it into this territory. Notwithstanding that we’ve seen some record performances coming out of the U.S. record at downloads 640,000, a record number of new students, added over 0.5 million and this is all [in advance] of [our] U.S. hub opening. When that’s open, it  will give us the ability to improve our proposition for customers in a far more talented way.

All good stuff, but it was the rise in CapEx spend planned for the second half of this year that spooked investors. For the first six months, that ran at £95 million. So the jump to £250 million for the full year clearly took some backer by surprise. But this is essential spend, insists Beighton:

Half of the expense will go into technology. Within the expense in technology, it’s the new retail systems or Truly Global Retail as we call it. Also into our digital platforms accelerating new customer experiences, accelerating use of AI, improving the Web and app development and all of that which of course improved customer experience and conversion. Warehousing will be around 35% of the spend, which is the mechanization/automation/facilitate phase through the Euro Hub and the start of the build out of U.S. hub. The remainder we’ve invested into our head office and expansion in retail which we hope will be completed early next year.

Track record

Beighton points to ASOS’s track record in sensible tech investment as further validation for the rise in spend:

We did 1,200 [code]  releases in the six months, that’s following 1,300 in the entire year last year. And on Black Friday, we implemented a complete rollout of a new navigation to all platforms. This is the largest design change we’ve ever made to our experiences, and it’s certainly most fundamental in many years. It improved where our customers search, browse and explore our products. It means that customers search by activewear, by activity, buys like clothing, by occasion and the customer feedback has been great.

In terms of major tech transformation products, new finance system and people systems also landed and we’ve launched the first module of Truly Global Retail systems. We’ve also rolled out a number of new customer features in the last six months, including Try Before You Buy in the UK, which gets customers the chance to try that products on before they have to pay for it of the Google Pay and the Android app and a new returns portal for speedier returns for Australian customers.

There’s also been a push towards providing greater localization capabilities, a program running in tandem with the widening global footprint:

We split out the UK Web site - previously, we hadn’t been able to this - then we followed up with the Rest of the World site or store as we call it. Then we did the Rest of Europe site too. In total now customers can select from 200 territories listed, sharing relevant payment methods, relevant delivery and relevant currency options. The depth of our localization will now continue to improve, [with more] languages and other more relevant local experiences. The launch of EU website, which covers around 90 member states that don’t have country-specific sites, will give us the improved delivery promise and more specific merchandizing for that territory.

In terms of what next, you’ll be seeing new languages. Ones on the blocks right now are Sweden, Netherlands, they’re on track for launch shortly. Beyond that, we’re working on more localized payment methods, greater options, greater television merchandizing, future language options, multi-language options and we all know these are proven drivers of conversion.

There’s also a greater AI play coming up, as the EVA ASOS Virtual Assistant steps up its recommendation and personalization capabilities. This is an area with a lot of potential, argues Beighton, but it’s not just about the tech itself:

There is a moment where some of these AI products will probably be a bit like a spreadsheet and you can go and buy them off the shelf and then do the big things like that and others as well. But when it comes to making them work, you need data science. Like a spreadsheet it can do anything you want, but it only becomes useful when you perform with it. So think about the data science adding in the formula to improve the experience for customer. They become a little bit more difficult to hire and then you need lots of data to feed it and gather together and to refine it.

My take

I suspect that what really spooked long-term investors wasn’t so much the uptick in spending, but rather the fear that ASOS is taking on too much at the same time. This has been an accusation thrown at the firm before, although Beighton is very quick to insist that the retailer has learned a lot over the past few years and that the various projects are designed not to be interdependent one another. Getting the long-touted U.S. Hub open early is a good totem for how infrastructure investment is being managed, as is the growing in-house tech stuff headcount. Of over a thousand people on that team, only around a fifth are contract staff, reducing the dependency on third parties and building that skills base needed to deliver on developments such as AI and machine learning.

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