It’s not so long ago that Asos was a darling of both the stock market and the trendy twenties who thought fast fashion had changed their lives.
The business that was first As Seen On Screen had a brilliant niche, making copycat versions of clothes showcased by the rich and famous at amazing speed.
It was an impressive operation. Asos shares boomed, to more than 7500p at one point in March 2018.
Over the past five years, that same stock is down 90%. The company’s relevance and cleverness seems to have been fleeting.
What went wrong?
New CEO Jos é Antonio Ramos Calamonte is candid.
His statement to the stock market today notes the “incredibly challenging economic environment”, but doesn’t shy away from the companies own many self-inflicted problems.
A sample: “excessively capital intensive, too complex and overstretched globally”.
Asos has “underinvested in marketing”, became “increasingly reliant on the use of markdown and promotions”, leading to “the erosion of gross margins”.
In short, it got too big for its boots. It spent money it didn’t have. And it took customers for granted in a highly competitive market.
It went for growth, growth, growth at the wrong time (this sound familiar).
What will it now do? The CEO is promising an overhaul of the commercial model and tighter stock control. Products will be cleared (sold) earlier in their life cycle, to cut markdowns on prices.
Sarah Riding, retail partner at the law firm Gowling WLG, said: “The economic challenges at play are extreme but not insurmountable for a reseller/brand with the right mechanisms and supply chain agility in place to enhance its value-for-money focus and crucially, implement a tighter returns process that drives customer retention rather than frustration."
Matt Britzman, Equity Analyst at Hargreaves Lansdown, says:
“ASOS, armed with a fresh CEO at the helm is looking to deliver change over the next 12 months in an attempt to streamline the business during these challenging times. Today’s results were broadly in line with expectations, it’s the outlook comments that’ll grab the headlines. Consumers feeling the pinch of higher costs across the board are changing spending habits, making it especially tricky to predict how the next year will look.”
In its favour, Asos reckons its mostly young clientele – many of whom live with parents so don’t pay mortgages or fuel bills – should manage the cost-of-living crisis better than most.
It does still have £4 billion a year in revenue and 26 million customers. There surely remains a good business in there somewhere.
