Asos overhauls operations as apparel demand becomes unpredictable

Dive Brief:

Asos on Wednesday announced a sweeping overhaul of its business, after swinging to a 32 million pound loss in the year-to-date period ending Aug. 31, ($36 million as of Wednesday’s exchange), down from last year’s profit before tax of 177 million pounds.
Revenues at the apparel e-retailer, which acquired Topshop and other U.K. brands last year, rose less than 1%. Sales improved slightly in September, but the company said the “significant volatility in the macroeconomic environment” makes it difficult to predict demand in the coming months.
Asos has renegotiated financial covenants, and at year end has banking facilities of over 650 million pounds. The company expects to write off between 100 million pounds and 130 million pounds in fiscal year 2023.

Dive Insight:

Under new CEO José Antonio Ramos Calamonte, who arrived in June, Asos is leaving few stones unturned.

The apparel retailer will institute a shorter, speedier buying cycle, explore more near-shore sourcing and reduce what it said has become a reliance on markdowns. Its operations outside the U.K. also need a close review, Calamonte said.

Overall company revenue at home in the U.K. rose 7%, with increases in the active customer base and average order frequency.

“Performance in the U.K. in FY2021/22 was surprisingly resilient,” GlobalData Head of Apparel Chloe Collins said in emailed comments, noting that’s a sign Asos could grow share in its home market. “However, this summer will have been propped up by increased demand for new occasionwear and holiday wardrobes, which is unlikely to follow through to next year.”

Another obstacle is younger consumers’ growing dissatisfaction with fast-fashion players like Asos and Topshop due to sustainability and ethical concerns and a growing “preference for longer-lasting, more versatile clothing,” according to Collins. Asos must also compete more with the resale market, which GlobalData expects will rise 22% to 6.45 billion pounds in the U.K. next year; the firm predicts the overall apparel resale market will hit $82 billion by 2026.

The company is reevaluating its key foreign markets including the U.S., France and Germany. Asos last year inked a deal with Nordstrom that includes being Topshop’s exclusive North American distributor. The Topshop business more than doubled its revenue in the period in the U.K., U.S. and E.U.

“[W]e are disappointed in our performance, given the extent of our historical capital investment, particularly in the U.S.,” Calamonte said. “This investment in a large, multi-region supply chain network has increased cost and complexity, not fully offset by delivery incomes. With this in mind, we will revisit our approach to resource and capital allocation to ensure a focused approach.”

The U.S. could be a source of good news for the retailer, however, according to GlobalData.

“The U.S. has a much more positive outlook after 6.9% retail sales growth last year and 10% revenue growth thanks to expansion of its Nordstrom partnership, particularly for the Topshop brand, and U.S. consumers will also face much softer inflation next year than those in Europe will,” Collins said.