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THE ASOS STRATEGY : THE AMAZING GROWTH OF ONLINE FAST FASHION Study on and the Fashion Industry, about the strategy behind the success of this UK online fashion retailer.
  • 1. ISOM 5100 Fall 2012 Group Project- Report THE ASOS STRATEGY : THE AMAZING GROWTH OF ONLINE FAST FASHION Study on and the Fashion Industry GROUP MEMBERS CHAN, Hing Chun Wonsky CHEUNG, Chun Ming Cliff CHING, Nga Ying Helen MAN, KaWai Joseph TAM, Chung Yin Matthew YEUNG, ChingNgai Jason STUDENT ID xxxxxxxx xxxxxxxx xxxxxxxx xxxxxxxx xxxxxxxx xxxxxxxx E-MAIL
  • 2. ISOM 5100 Fall 2012 Group Project – Report THE ASOS STRATEGY : THE AMAZING GROWTH OF ONLINE FAST FASHION –Study on and the Fashion Industry Page ~ 1 ~ INTRODUCTION ASOS plc (As Seen On Screen Holdings plc) is a UK based online-only retail fashion company starts in 2000. Within 12 years, it grows from a 2-people company to a firm with 1000 employee. The company was listed on the Alternative Investment Market (AIM) of the London Stock Exchange in 2001. Since then the revenue and the earnings per shares kept growing in a very fast pace. 31-Mar-08 31-Mar-09 31-Mar-10 31-Mar-11 31-Mar-12 Revenue (£ m) 81.04 165.40 223.00 339.69 494.96 Pre-Tax (£ m) 7.31 14.12 20.34 15.70 30.35 EPS 6.90p 13.60p 20.00p 27.30p 39.80p 131.00% 97.00% 47.00% 36.00% EPS Growth Exhibition 1: ASOS performance figures from London Stock Exchange Group statement of comprehensive income Year ended 31 March Revenue Cost of sales Gross profit Distribution costs Administrative expenses Operating profit before exceptional Exceptional items Operating profit after exceptional items Share of post-tax losses of joint venture Finance income Finance expense Profit before tax Income tax expense Total comprehensive income attributable to owners of the parent 46.00% i 2008 £'000 81044 (37432) 43612 (6328) (30322) 6962 — 6962 — 349 — 7311 (2258) 2009 £'000 165395 (83184) 82211 (10512) (57764) 13935 — 13935 (78) 268 — 14125 (4116) 2010 £'000 222999 (111803) 111196 (18060) (72825) 20311 — 20311 (69) 97 — 20339 (5759) 2011 £'000 339691 (173042) 166649 (34959) (102840) 28850 (12943) 15907 (3) 16 (215) 15705 (4856) 2012 £'000 494957 (242987) 251970 (65840) (144346) 41784 (10585) 31199 — — (850) 30349 (8070) 5053 10009 14580 10849 22279 Exhibition 2: ASOS 5 Years Financial Summaryii In 2012, ASOS attracts 18.8 million unique visitors a month, which is a 69% growth from 11.1 million visits at Q42011. It reached 9.2 million registered users in Aug2012 (a 43% growth compare to Aug2011) with 5 million active customers coming from 160 countries all over the world. In Aug 2012, comScore rankings for 15-34 year olds showing ASOS as the globally most visited fashion website, with daily visit of 625000.iii There is a large group of 381K and 272K followers of ASOS on Twitter and Instagram as of Oct2012, with a much bigger community of 1.94 million liked on Facebook. In this report, we shall study the success story of ASOS in the current industry. What are the reasons behind the raise of ASOS? Why does this brand become so popular? Not very long before, ASOS was a new brand, what are the entry barrier and the market situation of the retail fashion industry? How does ASOS deal with the challenge from the industry? Meanwhile, how does innovation and information technology helps the firm come to these point of success? We shall analyze the company and try to get some answers in this report. THE RETAIL FASHION INDUSTRY: ENTRY BARRIERS AND THE FIVE FORCES Just considering the US fashion industry, it is a big market with about 100K retail clothing Cliff CHEUNG, xxxxxxxx Joseph MAN, xxxxxxxx Helen CHING, xxxxxxxx Matthew TAM, xxxxxxxx Jason YEUNG, xxxxxxxx Wonsky CHAN, xxxxxxxx
  • 3. ISOM 5100 Fall 2012 Group Assignment #1 THE ASOS STRATEGY : THE AMAZING GROWTH OF ONLINE FAST FASHION –Study on and the Fashion Industry Page ~ 2 ~ stores in 2010 which reap annual revenues of $150 billion annuallyiv. It is a never declining industry, and it is always emerging. There is no single dominating player in the industry. There are many different segments of markets. The industry is fast and fashion trends change every season. The pie of retail fashion is huge, with an even bigger competition when we are now facing globalization and there are international brand all over the world. Retail fashion is an economics of scope. No single brand can cover all kinds of products of men‟s wear, women‟s wear, children‟s and infants, shoes, sport wear, accessories, etc., and the costs to cover all products will be high. Similarly, different brands may target for different age group and different price range, and targeting all ranges will be so difficult. Yet, entering the market of one or a few specialties may not be too hard. Starting-up new brand and become popular immediately seems impossible. Still, every year there are new brands. Some new brands may start local retail shops; while others many choose doing their business on eBay, Yahoo Bid or some local equivalent sites before they turn into big names. The start-up cost of an online shop would be less than that of a retail chain, as the cost of the physical distribution channel would include rent, renovation, sales staff payroll, etc. that can be saved for online business. With the strong competition in the industry, the question is how long these new businesses will turn into big names or will these new businesses survive before they become success. The experience and learning curve does matter somehow. Each brand needs time to get hold of the taste of the target customer group, and the success normally built up on the experience of trial-and-error. Even a brand can catch a target customer group one year, the trend and desire may change next year. In addition other new brands may come to success. The cost of consumers switching to other brands is pretty low indeed. Clothing manufacturers are globally everywhere and accessible, same as the global markets. With easy access to the distribution channels, new brands can start up local or regional retail chain, or start up online shops. In fact, all kinds of technology and processes of the retail distribution are not patented and relatively low cost nowadays. Government regulations could be a concern. Tariffs and bills for protectionism could be a concern, but it will be a macro risk that affects all firms in the country instead of an individual brand. The relatively low entry barrier of retail fashion could somehow explain the reason why there are heavy competitions in the retail fashion industry. There are many rivalries in the industry focusing on the same segment ASOS does. ASOS is targeting the twenty-something fashion lovers and there are strong competition globally in every continents for this segment of young consumer. ZARA and H&M are both the European fast fashion leaders. GAP is strong in the North America, while UNIQLO and MUJI are both strong in the Asia Pacific region. All these brands are strong in one or more regions, then try to expand globally. All these rivalries have strong penetration to the market with their retail chains, and some of them are already starting their online retail channels. Not yet to mention other online retail fashions like Topshop, Forever 21, and other regional online competitors. Seems clothes have no substitutes and all human-beings would wear something daily. Yet, brands have substitutes. Unsatisfied consumers will switch to other brand quickly, and the reasons of un-satisfaction could be complex. For example, trend and design of brand, quality, price, brand image, promotion, etc. Customers can change their tastes when trends change, and their loyalty to one brand can shift to another. Today‟s success does not guarantee the continuation of success tomorrow. Esprit is a good example that she was so successfully in Europe and Asia Pacific, but now the customers gone with the sales & revenue drops. Cliff CHEUNG, xxxxxxxx Joseph MAN, xxxxxxxx Helen CHING, xxxxxxxx Matthew TAM, xxxxxxxx Jason YEUNG, xxxxxxxx Wonsky CHAN, xxxxxxxx
  • 4. ISOM 5100 Fall 2012 Group Assignment #1 THE ASOS STRATEGY : THE AMAZING GROWTH OF ONLINE FAST FASHION –Study on and the Fashion Industry Page ~ 3 ~ The now-a-days young fashion lovers consume clothes like fast food. They do not demand excellent quality unless they buy luxury products. Otherwise, they expect the quality matches with the price they paid. They demand the designs fit the latest trends as well as their tastes, and loyalty loss quickly when a brand failed to do so. When doing retail online, consumers expect excellent customer experience and services. The expectations include the online web designs & contents, as well as the delivery and refund logistics. ASOS and other online retailers are all doing the best in these areas to keep the customers. On the supplier side, ASOS and other large online fashions may have some negotiation power. They can source clothing suppliers globally and seek for manufacturers with good price and quality. Similarly on logistics and delivery, big online retailers like ASOS can negotiate best contract with Royal Mail or other delivery service, not just on the best price but also the best SLA. With the large transaction volume on credit cards, the PayPal tier amount pricing strategy could provide some benefits of reduced cost to these large scale online shops. For employee side, with the name and reputation established, ASOS has the charisma to attract young and talent designers to join the company thus ensure the continuous creativity of the brand. The average age of the employee is 26-years-old helps ensure the designs can catch the taste of the target customer group of twenty-something. Indeed, ASOS works with complimentors. This is important as the co-operation drives revenue and also increases popularity of the online retail store. They are not just selling their own label but sourcing varieties of over 1,000 brands from all around the world into their portfolio including American Apparel, Denim & Supply and Polo by Ralph Lauren, Jack & Jones, Cheap Monday and Zadig and Voltaire. Ethical product has been a major focus, particularly „Made in the UK‟. ASOS stocks brands such as Barbour, Trickers, Cambridge Satchels and Kinky Knickers, all of which have had an amazing performance in 2011/12.vASOS also establishes a marketplace on their website to attract fashion lovers for unique pieces from indie labels, emerging designers, vintage sellers, seller items from customers‟ wardrobes. People can start their own online boutique on this marketplace site. Exhibition 3: The Entry Barries to Retail Fashion Industry and the Five Forces on ASOS Cliff CHEUNG, xxxxxxxx Joseph MAN, xxxxxxxx Helen CHING, xxxxxxxx Matthew TAM, xxxxxxxx Jason YEUNG, xxxxxxxx Wonsky CHAN, xxxxxxxx
  • 5. ISOM 5100 Fall 2012 Group Assignment #1 THE ASOS STRATEGY : THE AMAZING GROWTH OF ONLINE FAST FASHION –Study on and the Fashion Industry Page ~ 4 ~ THE OBJECTIVES AND DRIVERS OF THE ASOS STRATEGY We now have some knowledge on the industry landscape of the retail online fashion business. Before we look into more details of the company‟s strategy, let‟s look into the drivers and objectives, which determine the strategic direction and the performance of the organizations, of the strategy in ASOS. Exhibition 4: The Drivers and Objectives that direct the ASOS Strategy  THE OBJECTIVES: THE MANAGEMENT VALUES AND THE STAKEHOLDERS VALUES The values of ASOS management are not easy to achieve. Yet, we can see that they demonstrated in their day-to-day business. Customer obsessed; Restlessly innovative; Collaborative & respectful; Passionate. These are all sealed in the DNA of the company and in the hearts of everything all employees dovi. Cliff CHEUNG, xxxxxxxx Joseph MAN, xxxxxxxx Helen CHING, xxxxxxxx Matthew TAM, xxxxxxxx Jason YEUNG, xxxxxxxx Wonsky CHAN, xxxxxxxx
  • 6. ISOM 5100 Fall 2012 Group Assignment #1 THE ASOS STRATEGY : THE AMAZING GROWTH OF ONLINE FAST FASHION –Study on and the Fashion Industry Page ~ 5 ~ Exhibition 5: The DNA of ASOS, “The ASOS Way”vii Meanwhile, the values of the stakeholders are important too. Customer of course wants trendy and affordable fashions. Besides, ASOS aims at “Fashion with Integrity”. By achieving goals set-up for the strands of ethical trade, sustainable business, sustainable fashion and the community, ASOS contributes to the environment as well as the community. Besides charity funds, they developed a„Get Started with Fashion‟ program to raise confidence through young people‟s creativity and fashion awareness, where participants learn how to upcyclevintage/charity shop „finds‟ and sell their work on ASOS Marketplace.viiiAs per Louise McCabe, Head of Corporate Responsibility of ASOS, „We want to help provide young people with life changing opportunities, support and inspiration.‟ Through taking up these social responsibilities, ASOS can build up the corporate image, as well as attracting the growing community of fashion lovers who value sustainability. Exhibition 6:Thefour strands ofASOScorporate responsibility strategyix  THE DRIVERS: STRENGTH, WEAKNESS, OPPORTUNITIES, THREATS When we analyze ASOS internally, we know that innovation and fashion sense are the strength of the company. The average age of the employee is young. They are enthusiastic, and innovative. They are passionate towards fashions and know the taste of the target customer group. They know the fashion trends and they can launch 1000 new products weeklyx, the pace and efficiency out-performed others online shops (compare to another Cliff CHEUNG, xxxxxxxx Joseph MAN, xxxxxxxx Helen CHING, xxxxxxxx Matthew TAM, xxxxxxxx Jason YEUNG, xxxxxxxx Wonsky CHAN, xxxxxxxx
  • 7. ISOM 5100 Fall 2012 Group Assignment #1 THE ASOS STRATEGY : THE AMAZING GROWTH OF ONLINE FAST FASHION –Study on and the Fashion Industry Page ~ 6 ~ popular online brand of Topshop which can only put 300 new products weekly). They are the first online store to produce cat-walk video, and they can put 300 new videos daily online to attract consumers. In terms of popularity, ASOS is less well known outside Europe. ASOS is strong in UK and starting to be popular in US and Australia. However, unlike ZARA and GAP which has a strong retail link to promote their brands globally and can attract new customers online, ASOS may has disadvantage on getting popular without physical shops. Exhibition 7 shows the Google web trends on different fashion brands. The popularity of ASOS is growing, yet is out performed by other brands. The corporation and business strategy has to overcome this weakness. Exhibition 7: The Google web trends of online search for different fashion brands.xi The opportunity of the online retail fashion is big indeed. Shoppers in the UK spent £6.2 billion online in July 2012.xiiIn fact the Jan 2012 year-to-year growth is a 23% on e-retail clothing, footwear and accessories. xiii M-commerce continues extraordinary year-on-year growth at 353%, although the base is small.xivInternational market is another opportunity for ASOS. In 2Q2012, international accounts for 65% of sales at ASOS, with overseas sales soaring 49% during period. EU sales were up 27% in the first quarter and revenue from the rest of the world surged 61%.xv Competitions and change of fashion trends are always threats towards the company. Yet, there are other threats. Union and strikes may affect the online business because when it happens the products may not be able to go to the hands of consumers within the promised time. This is extremely risky for UK based company like ASOS since the power of union is so strong in the country. Royal Mail, facing strikes in 2009, is to blame for the lack of quick sales growth of ASOS.xvi Therefore, ASOS switched the local delivery contract to Home Delivery Network Ltd (HDNL).xvii Cliff CHEUNG, xxxxxxxx Joseph MAN, xxxxxxxx Helen CHING, xxxxxxxx Matthew TAM, xxxxxxxx Jason YEUNG, xxxxxxxx Wonsky CHAN, xxxxxxxx
  • 8. ISOM 5100 Fall 2012 Group Assignment #1 THE ASOS STRATEGY : THE AMAZING GROWTH OF ONLINE FAST FASHION –Study on and the Fashion Industry Page ~ 7 ~ THE ASOS WAY, WITHINNOVATION AND TECHNOLOGY DRIVING THE BUSINESS GROWTH The strategy of ASOS covers several areas. Designer, Marketing &Customer Services, Corporate Culture, and the Customers are key elements. They put customer in the centre of their heart of everything they do. However, this is not all. In now-a-days digital world, technology, social networks and the Internet are also essential in the firm‟s strategy. As a retail fashion corporation, designer is one of the key. With the company focus on young fashion, the young designers understand the desire of the young target customers with the high efficiency of weekly new products on-the-shelf attracting sales growth. The frequent new products can attract customers visiting the site more frequently therefore a higher order rate. In order to acquire new blood and to keep the designer force young, the firm has partnered with London College of Fashion and provide internship placement to 2nd and 3rd year design students with the candidate “embedded” in the design team, shadowing a designer and going on shopping trips to scrutinize trends around the world.xviii The Corporate Culture also helps to establish the success of ASOS. According to product and trading director Robert Bready, “Our approach is simple: we work hard, and we do it because we love it. We are very proud of how far inspiration and hard work has taken us since we started in 2000, but we‟re constantly looking for new ways to go faster, bigger, better.We know how important it is for companies to develop their staff into the best and most talented individuals they can be. At ASOS this is not just desirable but vital - our business is growing so rapidly that to maintain our high levels of quality and achievement, we need to ensure our people grow at the same fast rate.”xix The company developed induction program for new comers, and talent management program to develop the emerging stars in the firm to take up bigger role. Marketing & Customer Services is another strategic area which is a key to the ASOS business. They aim for the global delivery and return proposition that is speedy, convenient and reliable. They are the first to offer free delivery globally. No minimum order amount. Free delivery even with one single item purchased. This clearly gives advantage, with new customers can try the service with minimum amount before they build up their loyalty. Free refund is another policy that can give confidence to their customers. Email to customers clearly communicating the status of the order delivery is under prepared or dispatched gives warm feeling to the customers that they care. In some countries, customers can now track their order online.xxCustomers can return the items by mail with the refund form attached in the delivery and simplify the process from the customer perspective. In-country return solution in some European countries like Spain & Ireland, and Australia, helps to further reduce the cost & time of refund.xxi In 2012, ASOS even starts up international office in Sydney and New York to provide better customer care in the regions xxii. And in the Australian ASOS web site, different products are sold due to the opposite seasons in the southern hemisphere. Meanwhile, to promote to the young fashion lovers who are students, there is a 10% student discount offer.xxiii Regular sales and online outlet are available on the ASOS web site helps clean off the stack-up items. Furthermore, special email to customers in different countries for special discount promotion (e.g. China National Days Discount to customers in China and Hong Kong) makes the customers feel the different. Despite there is no physical retail chain, ASOS allows customers to collect their order
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