strategic growth in the fashion retail industry

8/10/2019 Strategic Growth in the Fashion Retail Industry

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Strategic growth in the fashionretail industry An asos.com case study

Page : Introduction

asos.com is the UKs leading online fashion store for women and men.Launched in 2000, the online retailer targets fashion conscious 16-34 year

olds. On asos.com there are 9,000 products available at any one time, with

450 new fashion items added every week. These include womens fashion,

menswear, accessories, jewellery and beauty products. asos.com attracts 3.3

million unique shoppers every month and has 1.8 million registered users.


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An online service of

this scale requires a substantial background operation to fulfil orders and to

provide customer service. Five years ago, asos.com had just 550 square

metres of warehouse space. Today, to meet growing demand, asos.com now

has 32,500 square metres of warehouse space equivalent in area to nearly

five football pitches. In April 2005, asos.com employed 47 permanent staff. By

February 2008, it had 250 employees. These human and physical resources

are needed to meet rapidly increasing demand. Sales increased by 90% year

on year for the 12 months to 31st March 2008. In April 2008, there was a daily

average of 220,000 unique visitors to the asos.com website. The growth in

sales translates into profit. Group profit is likely to be in excess of 7 million.

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Page 2: Ownership and management structureasos.com is a public limited company (plc). This means that the business isowned by shareholders and that its shares can be purchased by the generalpublic. asos.com shares are traded on the Alternative Investment Market(AIM), which is part of the London Stock Exchange.
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Joining AIM has several advantages for a growing company such as

asos.com. AIM-listed companies do not need to comply with the strict rulesthat must be followed by businesses listed on the main London stock market.They do not need to meet any size threshold, either in terms of marketcapitalisation or the numbers of shares that they issue. This means it is easierand cheaper to obtain an AIM listing. It provides smaller companies with achance to raise capital through the sale of shares. This capital can be used tofinance growth.

As a limited company, asos.com is required by law to have a memorandum ofassociation and articles of association. A memorandum of association setsout the name and purpose of the company and the number of shares it canissue. The articles of association sets out the rights of shareholders, the roles

of directors and other factors that relate to the control and management of thecompany. These documents establish a company as a legal entity. Withoutthis legal framework, the business would not be able to issue shares.The asos.com board consists of two non-executive directors and threeexecutive directors. Non-executive directors do not have day-to-dayoperational responsibilities for the business. They are invited to join the boardbecause they bring experience and qualities that can guide the strategicdirection of the company.

asos.com | Strategic growth in the fashion retail industry

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Page 3: GrowthMost companies seek to grow. They want to increase profits for theirshareholders. They also want to increase the overall volume of businessbecause this can lead to significant reductions in costs. These are known as

economies of scale. For example, as asos.com grows, it will require a largerwarehouse and distribution operation. As it handles more sales transactions, it
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will find it easier to make these operations more efficient. It will also be able toget better deals from its suppliers through ordering goods and services inlarger quantities.

A company can grow in several ways. It can grow by simply selling more of itsproducts. This is known as internal or organic growth. It can also grow by

taking over or merging with other businesses. This is known as externalgrowth. It is quicker to expand a business through external growth. However,a company would need finance to fund any acquisitions.

Integration A company that seeks to grow through acquisition can adopt two mainstrategies.

A company that seeks to grow through acquisition can adopt two mainstrategies. It can pursue a strategy of horizontal integration. This occurs whena company takes over, or merges with, a direct competitor. For example,

when the supermarket chain Morrisons acquired the rival Safeway chain in2004, it simply created a larger supermarket chain. This was a classicexample of horizontal integration.

Companies can also seek to grow through a strategy of vertical integration.This is when it acquires a business at a different stage in the chain ofproduction. It may acquire businesses that were previously its suppliers or itscustomers. For example, a furniture manufacturer might purchase a chain of

furniture stores so that it can sell its products direct to consumers. It wouldpreviously have looked to sell its products to this retail furniture business. Acquiring or merging with customer businesses is called forward verticalintegration .

The manufacturer could also choose to merge with one of its suppliers, suchas a timber merchant. This would give it more control over one of its keyinputs. Merging with suppliers is called backward vertical integration.asos.com has achieved rapid growth organically. It has not grown byacquiring other businesses. Instead, it has grown by increasing its customerbase, number of brands and products available to buy at any one time.Moreover, it has grown rapidly without incurring the problems that this cancause for some businesses.


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Impacts of rapid growth At first glance, rapid growth might seem to be a positive occurrence. However,it can cause problems and a firm that grows too quickly can run intodifficulties. A surge in demand generates additional costs. It costs money tofulfil orders. For example, a business may require extra staff to process ordersor it may need to buy in more stock or supplies. A business may have to meetthese expenses before it receives the proceeds from the additional sales, andthis can lead to cash flow difficulties.Even if the company has enough capital to finance a surge in demand, it maystill face problems. It may run into logistical difficulties and simply lack theshort-term capacity to fulfil orders. It may not be able to make productssufficiently quickly to meet demand. This sometimes happens in the run-up toChristmas, when a manufacturer cannot produce enough of that years must -have toy or gadget. A business that fails to meet demand risks losingcustomers. It can take a long time to repair a damaged reputa

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Page 4: Improving the business

asos.com's strategy of organic growth has shown substantial results. It hasmanaged to satisfy increased demand. The company has also increased itsmarket share. asos.com has recognised that the conditions were right for anonline retail business in the fashion retail sector.The company has used the Internet as the primary growth tool. It has tappedinto the rapidly expanding online retailing market. As research in 2007 by theonline retail consultancy Interactive Media in Retail Group (IMRG) showed:

total online spending in the UK reached 30.2 billion in 2006 the number of UK online shoppers grew from 16 million in 2003 to 25 million

in 2006, an increase of 56 per cent over four years
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Internet access grew by 45 per cent in the same period, with 42 million peoplehaving access in 2006 compared to just 29 million in 2003

the number of broadband connections more than tripled in four years, by 2006there were more than 12.7 million UK broadband connectionsasos.com targets its offer at a specific market segment of young (16-34)

fashion-conscious consumers. This market segment now accounts for 20% ofthe Internet shopping population in the UK. According to the market researchorganisation Mintel, women aged 2024 are more likely than any othersegment to spend their money on clothing and footwear. The average spendper head on clothing increased by 76% in 2006 to 1,208. asos.com offers anextensive and diverse range of products for men and women. Its departmentscover:

own brand clothing brands high-street and designer footwear accessories, for example, sunglasses jewellery swimwear

The clothing ranges also cater for narrow market segments, for example, forpetite women (under 53?). As well as its own brand, asos.com also ent ersinto collaborations with designer labels. This enables it to provide well-knownbrands that appeal to its young, fashion-conscious target market. asos.comstocks over 400 brands including:

Diesel All Saints Fred Perry Levis Adidas French Connection

However, asos.com would not have grown so rapidly if it did not offer apleasurable shopping experience. The first step in any online business is toensure that the website offers something of real value to consumers,something that cannot be obtained by visiting a store or a shop. One centralquestion dominates asos.coms planning - why would consumers choose tobuy clothes online when they could visit a shop and see, feel and try ondifferent items? asos.com had to create an online shopping experience that


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offered convenience, choice, interesting styles, competitive prices, allcomplemented with high levels of customer service such as prompt andreliable delivery.Heavy investment in the website and its underpinning technology has beenvital. Behind the technology and the website, asos.com has invested heavily

in ensuring that customers get what they want from the online store. Internetshoppers have very high expectations. asos.com knows that customers mustbe pleased with their shopping experience.

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Page 5: Communication to support growth

The structure of a business organisation usually alters as it grows. When acompany is very small, a manager tends to take on most managerialfunctions. As a company grows, it often introduces new layers of managementand organises itself into specialist departments. As it has expanded,asos.com has developed a more hierarchical organisational structure, withindividual departments responsible for specific functions such aswarehousing, product design and merchandising.

asos.com works in a rapidly changing market. It must keep up withdevelopments in web technology. Customers can now track their ordersonline. Shoppers can refine the products they view on asos.com, by choosingcolours, sizes and brands to suit.The company tries to keep its website current by adding articles of interest tofashion conscious shoppers. This content is refreshed every week to retainthe customers attention. To enhance the shopping experience, asos.com has increased the size ofproduct images on the web by 250%. It has also used a catwalk feature forwomens wear. This shows how the products fit and move to give thecustomer the best representation. The asos.com Style Blog is updated dai ly.This provides visitors to the website with features such as Daily Shop,Catwalk trends and the latest fashion and celebrity news.
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The company uses a number of other communication channels to drivegrowth:

It has increased the asos.com monthly magazine to 116 pages. The first threeissues generated more than 1.5m in sales with an average response rate of9%. This is higher than the industry average for this type of promotion. A

menswear version of the magazine launched in May 2008, featuring practicalstyle advice, entertainment news, band interviews and aspirational fashionstories to appeal to young male consumers.

It emails a newsletter twice a week to 1.8 million people who have chosen toreceive it. This significant investment in creative resources has helped toincrease sales from the newsletter by 137% in 2007.

As part of its PR campaign during 2007 there were 2,236 fashion editorialpieces about asos.com and its products in the consumer press. This was anincrease of 59% against 2006.

aso s.com takes a best friend approach to help build customer relationships.This means that customers recommend other people. Customers feel theyhave a personal relationship with asos.com and therefore want to share thiswith their friends. This type of w ord-of- mouth recommendation gives resultsabove the industry average. Research on traffic to the asos.com websiteindicates that around 15% of customers visit the site following a personalrecommendation. Furthermore, in a survey to find out levels of use of thecustomer magazine, 60% stated that they share their copy of the magazinewith at least two other people.

In the last customer survey, 73% of customers stated that they wouldrecommend asos.com to a friend.

As it continues to grow, asos.com needs to make sure that customers stillreceive the highest standard of service. Many customers still prefer to dealdirectly with someone one to one. It has a team of 30 customer serviceadvisers. This team responds by email to all customer enquiries, such asproduct questions, stock requests or delivery status. asos.com has workedhard to reduce the average response time for customer enquiries from sixhours to one hour.

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Page 6: Conclusion

asos.com has achieved a remarkablegrowth since it first began trading in 2000. Following the dot.com bubble of thelate 1990s, many people doubted the potential of Internet-based retailbusinesses. It has taken careful planning to ensure that asos.com meetscustomer needs. The business has grown organically. It has expanded itsmarket share, taken on more staff, and grown sales and profits. This growth

has been achieved through systematically planned investment in both peopleand technology.

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ASOS CIO talks about the nightmare

of aligning technology with business MAY 7, 2014 BY DEREK DU PREEZ1

178 FacebookTwitterLinkedInGoogle+

Given that the UK has fully embraced

e-commerce and internet shoppers now contribute more to the nation s

GDP than other country in the G20, it is perhaps unsurprising that it

spawned one of the world s leading online retailers ASOS. When

launched in 2000, the website was aimed at providing consumers a tool to

buy clothes and accessories that had been worn by celebrities, or

otherwise items As Seen On Screen, but has since grown to a global online

fashion store that has over 65,000 products that are targeted at the 20-

somethings market. ASOS now has eight local language websites (UK, US,

France, Germany, Spain, Italy, Australia, China and Russia) but also provides

free shipping to 234 countries in total. It s website attracts 29.5 million

unique visitors a month (excluding mobile) and has 14.8 million registered

users. With the Group s chief executive recently claiming that 1 billion in

annual sales are firmly in the company s sights, ASOS is truly an online

giant.

However, this poses a serious challenge for the person in charge of the

company s technology in this case, Peter Marsden. Speaking at SDL s
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Innovate conference in London this week, he said that online fashion

shopping is more difficult when compared to other retail categories

because ASOS still has to compete with the high street, where when it

comes to clothing, consumers often like to try before they buy. This meansthat if online fashion retailers are going to compete with the physical

outlets, they have to make the customer experience as seamless as

possible this doesn t just mean a fancy website and mobile app, but also

unrivalled delivery and next generation payment options. Marsden said:

We have got to offer a much better experience, as consumers are not

going to be able to see it and touch it until its their hands. They have got

to be able to return it as seamlessly and quickly as possible. Payment

options, delivery options every customer experience has got to be right.

Not just customer touch points like the website and the app. We have got

a long way to go until we get there.

Marsden was speaking at SDL s conference because ASOS is using the

company s Fredhopper platform to help customise and personalise the

consumer experience for shoppers, depending on which location they arebased in and which device they are using. For example, a shopper in

Germany is likely to want a higher quality product than a shopper in the

UK, according to Marsden, and being able to deliver results based on

specific user information should help to drive sales. A lot of this comes

down to search, where ASOS found that consumers that search for goods
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Although Marsden s insights into the company s technology developments

were interesting, I thought his comments about how he operates as a CIO

in a fast paced, online environment were more pertinent.

You dont have ten years anymore

Shortly after Marsden s presentation began he didn t waste time to tell the

audience that his job is a bloomin nightmare because of the challenges

that come with aligning a technology build and investment with the

strategy of the business, which in this day and age can iterate every couple

of years. He said that a lack of time causes him endless problems, and this

is largely because of how businesses now plan for the future.

Think about business strategies twenty years ago, I remember writing a

business plan for a bank I helped launch called Egg in the early 90s, and it

was a ten year business plan. At that point the common logic was you

write your business plan, you write your business strategy, and every other

functional strategy is subservient to that. So you write your business plan

and then you do your technology strategy.

The problem is that the world has now changed; how many companies

now have a business strategy that lasts more than two to three years?

Certainly if you are an e-commerce business, the business strategy changes

really quickly. Technology on the other hand still takes a long time to

build, so if a business strategy is lasting two to three years, can you

imagine if I went to my CEO and said I ve got an IT strategy that lasts two

to three years? Then we will throw away that stuff and build some morestuff?

Marsden said that no matter what anybody says, this short term view for IT

just isn t realistic and technology investments are still looking at a life -span

of at least five years. He said that this gap between business strategy and

IT investment is widening because of the rapid changes in the consumer s

expectation of how they experience and interact with online products.


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The customer expectation of their experience with our produc ts is

regularly changing all the time we are raising the bar of customer

experience. So even if we have something that looks great today, we know

it has to change, so I have to make sure that the technology platform thathas been put in place is flexible enough to change on a regular basis.

That is really, really hard. Speed of change is the hardest possible thing.

Technology has to be designed now, thinking about customer experience

and how that experience might change that s a huge headache for me.

This headache , according to Marsden (and I have to agree), is even worse

for companies that have a long history and are dealing with legacyapplications and systems that are so deeply embedded into a company s

processes that incorporating agile changes is near impossible. As each year

goes by, he said, it becomes harder and harder to maintain flexibility.

Marsden believes that overcoming this challenge is largely down to how

the technology function is structured within the business where IT must

sit with departments, such as marketing as well as hiring people that

get business strategy.

So what do we

have to do now? We have to hire IT folk that can talk about business. Thatcan think about what is next, not just ones that can be told what to do.
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They have to be engaged with where the business is going and what it

might change to. Technology isn t just a cost, it isn t hidden in our

business it is the shop front. I have to be the heartbeat of our

organisation.

And it s not about outsourcing, if any of you guys have a great experience

of outsourcing technology great, but that s rare. To me having great

technology people that are part of your business makes a huge

difference.

And to all you CIOs that like to hide away from other departments and be

locked away near the servers? Marsden has some advice for you

From my perspective I have to be out there trying to understand where

each department is trying to get to, where the business is trying to get to,

because every decision I make could be hindering where they are trying to

go in the future. If I don t have that crystal ball I could really be

constraining my organisation.

We have to be truly agile and collaborative, I have to work right alongside

my colleagues not in a separate department or a separate building. My

team sits right with our marketing team, which we have a great

relationship with. They understand our constraints and we understand

where they are trying to get to.

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Derek du Preez

Derek du Preez has spent the past few years defending the needs of the

end-user and helping vendors understand how they can better serve their

buyers' technology and business needs. He also loves to bother

governments about all things digital.

Interview: Asos technology boss on its ITinvestment plans2 April, 2014 | By Rebecca Thomson

Asos is investing millions in its IT. Chief information officer Pete Marsden

explains how he plans to make sure its technology is underpinning its phenomenal growth.

Asos s first half results don t, at first glance, look as glittering as its financialannouncements normally do.

Pre-tax profits fell 22% to 20.1m in the six months to February 28, despite salessurging 34% to 481.7m. But the reason behind it is a renewed vigour in its IT andinfrastructure investment a total of 68 million is being invested during the currentyear in logistics, IT and the Chinese site.

Chief information officer Pete Marsden is heading up Asos drive to bring itstechnology bang up to date. From the outside, it is easy to assume that the etailer stechnology has always been cutting edge its phenomenal growth has, after all,relied directly on the technology driving its site. But it is this fast growth, combinedwith the relentless pace of change in retail and the speed at which the fashionbehemoth is s caling up in size, that means even Asos systems need some attention.

We all work very closely together and are very focused on the timelynature of the business. Pete Marsden, Asos chief information officer

Marsden, who joined the business in September 2012, says: We had to changequite a lot. The main problem with Asos technology was that a lot of it was self -built
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in the early days. When they built these systems they didn t expect Asos would be aglobal player that needs to operate with Far Eastern languages and at the scale wenow operate. They didn t have the level of sophistication needed and we have had torebuild a lot of the front end systems.

Asos investment schedule is a formidable one. It has already refreshed its front endsystems, rolling out a new content management system which allows the marketingand editorial teams to update pages and content daily. The system also allowsdifferent content to be uploaded for different markets.

Marsden adds Asos is now working on the security aspects o f the website. We rerebuilding core parts of the platform such as the checkout and the basket, to makesure we can keep up with growth. That part of the system has to be really highperformance. Customers want to press a button that says buy at that point, wehave to check the stock, check the delivery option and make sure the deliverypartner can do it, take the payment and validate it all in that one second. You have to

build that part of the system really well.

Plus, the company will soon allow shoppers to purchase without registering on thesite, as well as allowing them to sign in to the site via Twitter or Facebook. We arelooking at all aspects of traffic how user journeys are managed and how easy it isfor customers to navigate.

A large amount of work is going on with back-end systems as well. For a start, Asosis building a new data warehouse to help it deal with the volumes of data it gets. Weget petabytes of data. We use Hadoop database technology and we send reports tothe marketing team we give them all the data they could want. We ve got data

scientists who analyse it all, and we use that to shift the look and feel of the website.

As at Amazon, where use of data is credited for a large part of its success, Asosprioritises its use of data. Marsden who used to work at Orange UK and the RoyalBank of Scotland says: The level of detail we go into in understanding data is justas high as it was in telecoms. We have a detailed understanding of each customerand the profitability of each customer. We learn what sells well in what place it sreally important for us to understand what s trending and getting the right product tomarket.

He says his key priority is to build s peed and flexibility into Asos systems, so theycan cope and evolve as the business continues to grow and change. Fashion movesat such a great rate, it s a real challenge. It s really important for us to try and designfor speed. Speed doesn t happen on its own we have to constantly think about howwe are building systems so they re easy to change. That takes a lot of effort. Webuild in a modular fashion.

This means Asos is boosting its use of cloud technologies, especially when it comesto internati onal operations. We are very conscious that having a UK data centre is avery long way from Australia. The cloud improves speed and helps with flexibility we don t have to keep buying new equipment.

Asos has historically built a lot of its own system, and depending on the area of thebusiness, this is still the case. The closer to our customers the system is, the more
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likely we are to build our own systems. Apps and mobile sites, for instance, we builtourselves warehouse management systems, we are n ot specialised in.

A lot of the work going on at the etailer is internationally focused. The company islaunching apps for Australia and the US, and will do the same for France and

Germany later in the year. Marsden says getting everything right for different types ofconsumers is a delicate balancing act the content, the language, payment optionsand delivery options all change in each market. He says: The look and feel might besimilar but in Russia, for instance, they want to have cash on delivery because ittakes so long to get to them the last thing they want to do is pay on credit cardbefore the goods arrive.

In the Far East and China, meanwhile, the look and feel of the site and apps is verydifferent. They want five times as many images, the y want more detail, the level ofinformation they ask for is much higher. They re also even keener on social mediathan we are. They look for recommendations from other customers and peer

reviews.

While all this is going on, Asos continues to push the envelope on home turf, comingup with new innovations in areas from delivery to content. It is planning to roll out apick up drop off service in France and England allowing shoppers to collect parcelsfrom a network of independent retailers, and it is trialling a loyalty scheme in the UK.

While Marsden insists it s not rocket science, coming up with a technology strategythat supports a growth plan like Asos is a big task. His team is around 400 strong,and split into three. One section works closely with marketing, another focuses oncore ecommerce systems such as the warehouse and buying and merchandising,

and the third section is the data team.

Marsden says: We all work very closely together and are very focused on the timelynature of the business. W e all understand the performance of the site and what sselling every day. And by all appearances, Asos s technology team is more thanequal to the task in front of it.

strategic growth in the fashion retail industry

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