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Can Asos Make It In America?

Expanding in the US is central to the e-tailer’s ambitions to nearly double sales to $9.4 billion in the next four years.
Asos advertising campaign. Asos.
Asos advertising campaign. Asos.

Fast-fashion retailer Asos has placed international expansion at the centre of ambitions to regain its footing in an increasingly competitive and challenging market. In particular, the company is aiming to ramp up its presence in the massive North American market where it has been pursuing growth for years.

The company detailed plans to double sales in the region to £1 billion ($1.3 billion) Wednesday as it fleshed out its strategy to overcome headwinds that led to a profit warning and the abrupt departure of its chief executive in October.

“There’s a huge opportunity outside of the UK,” said chief commercial officer Mathew Dunn. “And whilst we’ve made good progress, there’s clearly more to go for — and we have the potential to increase the pace and intensity of our execution here.”

Asos was well-placed for the pandemic, enjoying a surge in sales when lockdowns drove consumers online. In February it snapped up coveted high street brand Topshop in its first-ever acquisition, signalling its ambitions to turbo-charge growth. But its trajectory since has been bumpy. Sales growth has slowed this year as consumers began to revert to pre-pandemic shopping habits and supply chain snarls hit. Its share price has plummeted more than 40 percent since January.

In its strategy update this week, Asos sought to convince investors the slow-down is just a circumstantial blip. The company detailed plans to nearly double sales over the next three to four years to £7 billion ($9.4 billion) and increase its profit margin to at least eight percent over the longer term.

Alongside the international expansion, the plan includes sizeable investments in growing its own-brand portfolio, logistics and selling marketplace services to third-party brands to improve efficiency and revenue.

“At its heart, this plan is about increasing the pace, intensity and discipline of our commercial execution, which we all acknowledge has been a key factor holding us back over the past number of years,” said Dunn.

Investors reacted positively, with the share price closing up almost 10 percent on Wednesday.

Asos already has a sizeable and growing position in North America. Last year, US revenue grew 21 percent to almost half a billion pounds and the region currently accounts for about 13 percent of the company’s overall sales. But with just 3.5 million active US customers, there’s still plenty of room to grow. Recent investments across tech, logistics and back-end operations have now made pacier growth possible, the company said.

“The beauty of where they are is they’re still pretty heavily UK based,” said Guy Elliott, senior vice president of retail at consulting firm Publicis Sapient. “In terms of their market penetration into the US in particular, which is such a giant market, they’ve got a long way to grow to be saturated by any stretch of the imagination.”

But cracking the market is a challenge. On the logistics side, the size of America means that providing super speedy delivery in a cost-effective manner is expensive. More broadly, underinvestment and failure to localise product assortment have held players back, said Elliott.

“The American market is huge. And so you’ve got to pour a lot of money in there to drive brand awareness, or build it from the ground up,” he said. “Equally, you’ve got to make sure that you understand the differences in tastes between the markets. You can’t just take the clothes you sell [in the UK] and immediately assume that Americans are going to buy that.”

Moreover, the American market is its own fiercely competitive ecosystem. While Chinese ultra-fast fashion brand Shein exploded in popularity this year, local players like Fashion Nova and Forever 21 and larger European rivals H&M and Zara all hold dominant positions, according to a June report from data analytics firm Earnest Research.

Now, Asos is betting on a partnership with US department store Nordstrom to drive fresh growth. The two companies entered into a strategic partnership in July, with Nordstrom acquiring a minority stake in Topshop and its sister brands. Going forward, Nordstrom will stock a curated assortment of Asos’ own brand online and in select brick-and-mortar stores — a first for the Asos brand.

The partnership will allow Asos to benefit from Nordstrom’s knowledge of the American market, while leveraging the department store’s physical network to boost brand awareness. While Nordstrom has been the exclusive retailer of Topshop and Topman in the US since 2012, it will be the first time a physical retailer has stocked Asos own brand.

“Brand awareness is always going to be a challenge, just cutting through the gazillions of companies in the US,” said Elliott.

Here Topshop will be an asset, he continued, noting the brand’s strong name recognition. Topshop is already driving growth for the company in the region: in the most recent quarter, sales of the brand were up nine percent, according to Asos.

“The Nordstrom JV with Topshop and putting an ASOS edit into key Nordstrom stores is a great way to build brand awareness given the high footfall and active customers online,” said Deutsche Bank analyst Adam Cochrane. “This has to be backed up with great execution and relevant pricing. Most of these seem to be in place and ramping up the marketing budget should deliver the further scale economies.”

The company said it has developed logistics and infrastructure that it lacked before to support its ambitions. It will also produce designs specifically for the US market while doubling marketing spend in the region. Last month, the retailer launched a new ad campaign that rolled out across video and social channels like Youtube, Hulu, TikTok and Snapchat.

“I don’t think we’re talking about, ‘we have a problem [that we need to solve]’. We have a certain growth that we want to accelerate,” said Jose Antonio Ramos Calamonte, who joined Asos in January as the company’s first chief commercial officer. “Now we are better prepared than ever, because of infrastructure, because of brands, because of capabilities. Now, we’re going to put more on the table than ever.”

This article was updated on November 11, 2021 to include additional analyst comments.

Related Articles:

Can Asos Handle Fast Fashion’s Headwinds?

Why Asos Needs Topshop

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