Published Tuesday 30th July 2019
A lot has been made in recent years about the boom of online, fast-fashion retail. In this burgeoning market, Asos has been one of the most prominent global players. Once seen as a star of the online retail world, the fashion outlet has been brought back to earth by profit warnings announced earlier in July.
Recent events at Asos serve as a reminder to all major businesses. Despite increasing avenues for profits and growth, it is still vital that the basic operations are kept running to a high standard at all times, particularly when operating in the online space.
Asos Profits Face Sharp Decline
More worryingly for the company, this is the second profit warning announced in the space of seven months. After recent events, they reported a new expected profit for the year of £30-35 million. That figure is sharply down on analysts’ previous predictions of £55m and will represent an even sharper fall from 2018’s profit of £102m.
Asos CEO Nick Beighton clarified in his message that “this is not a demand issue.” As mentioned above, few markets have seen the recent growth achieved by online and fast fashion. In February, competitor Boohoo saw annual profits increase by 38% for the year to nearly £60m. Meanwhile, Asos also stated that in the UK, in the four months to 30 June, sales had grown by 16%. Analysts also agree that the market for Asos will continue to grow into the foreseeable future. However, that only heightens the surprise that has met these latest profit reports by one of the industry’s biggest players.
The Importance of Distribution in Online Retail
One of the primary reasons for Asos’ declining profits is its ambitious plans for expansion. Nick Beighton reported that “the major overhaul of our infrastructure has been bumpier and taken a lot longer than we originally anticipated.” Whilst many of Asos’ markets continued their expected sales growth, the USA and EU regions saw a decline. It is in these two areas that the company’s shortcomings are seen in full effect.
According to stockbrokers, around £700m has been spent by Asos over the last four years on warehouses and distribution management. One example of this is a new site in Atlanta, USA. Opened in February, it has reportedly struggled with consistent stock shortages, as brands struggle to get enough products to the new site to satisfy local demand.
In a hyper-competitive industry like online retail, not having stock can be fatal to profits. Online customers are now increasingly demanding, not just on price but also on convenience and speed. With so much choice available, new customers will go to a competitor if they find Asos to be out of stock. This early loss leaves Asos behind with regards to generating customer loyalty. The company noted this in their announcement, saying that it may take some time to regain the customer base.
Regarding Asos’ results in the EU, these have been affected by changes to a warehouse in Berlin, Germany. According to the profit warning, issues have arisen as the location has transitioned to a more digital method of processing. Previously, orders were dealt with manually. However, planning ahead, changes are being made that will see orders handled by automated systems. This error in adoption has seen customers in Central Europe suffer similar issues to those in America, leading to lower growth and increased costs to fix the problems.
Whilst this has presented a short-term profit concern, the modernisation of distribution centres is vital for forward-thinking businesses. There is now a range of modern technologies available to warehouses that can drastically improve productivity. From AI supply chain models to RFID technology in warehouses, intelligent implementation can lead to substantial long-term business improvements. This belief is shared by many analysts, with Sofie Willmott of GlobalData stating with regards to Asos that “changes being made to US and EU distribution centres are vital to facilitate long-term growth in these key markets.”
Refine Your Business Supply Chain
The challenge being faced by Asos represents the reality for many major businesses. A reliable, forward-thinking supply chain is vital across many industries, but particularly those dealing with customers in the online space. Here at Expense Reduction Analysts, we pride ourselves on the ability to reduce distribution costs for our clients through effective supply chain management. We have been working with major UK businesses since 1992, helping to refine procurement strategies in a range of cost areas. If you are interested in seeing what our specialists could save your business, why not speak to our team today?