To say that investors have lost confidence in Asos may be something of an understatement: its share price has plummeted since April 2021, to the tune of about 90 per cent.
The stock resembles a playground slide, dotted with small cliffs that correspond to profit warnings, news of a slump in sales, or lowered guidance.
In April 2023, its stock was even shorted by Matthew “Dark Destroyer” Earl, who placed a £4m bet on the e-tailer.
For a company which once revolutionized the online e-commerce market for young shoppers, it’s an unfortunate state of affairs.
Has Asos lost its competitive advantage?
After a meteoric rise in the 2010s, Asos was one of the only shops in town with the experience and capability to supply the nation’s suddenly ballooning demand for online shopping during the Covid lockdowns. The end of that boom, plus widespread tightening of post-pandemic belts, sent investors away as quickly as they’d come in 2020.
However, Asos hasn’t just seen reduced sales – understandable with Brits spending less on online shopping post-pandemic – but reduced historical and forecast market share, too.
Shein is expected to overtake ASOS as the UK’s sixth largest apparel retailer by 2027, while ASOS is expected to fall to 10th place, according to GlobalData.
“Shein’s winning combination of highly competitive prices and omnipresent social media marketing will allow it to overtake UK competitor ASOS,” Louise Deglise-Favre, Apparel Analyst at GlobalData said earlier this year.
Shein doubled its profit last year to more than £2bn, with its low prices and on-the-spot reaction to fashion trends resonating with customers.
Clive Black, analyst at Shore Capital, has said that Asos has come off the back of three “really hard years” and is facing increased competition from Asian rivals Shein and Temu.
[Shein and Temu] run off a different cost base. They run off different regulations and different compliance procedures and that’s a real challenge for the online apparel trade.
Black said Asos’s difficulty in resonating with shoppers is one of the reasons it has made it “hard to be optimistic [about the business] in the medium term”.
According to RBC Capital analysts, Asos’ competitive advantage on service has “narrowed as it makes adjustments for the sake of profitability”. Plus, omni-channel retailers like Next and M&S have “closed the gap” and vastly improved their online offerings.
JP Morgan analysts have also pointed out “a lack of management bandwidth” and “fast-paced expansion”, which combined to cause “creative missteps, warehouse issues and, ultimately, slowing demand and lower profitability”.
“Retailers [with falling market share] should focus on agility and price to ensure their product offerings can compete with Shein for the attention of young shoppers, and they must effectively leverage the power of social media and collaborations to regain top of mind appeal,” Deglise-Favre added.
A fashionable restructuring
One of the way that Asos is fighting back against slower sales is by speeding up its reaction to fashion trends. As part of a wide-ranging turnaround strategy, Asos will restructure – not cut – 200 jobs at its head office to include more tech roles and fewer analyst roles.
Asos said that current set-up was “no longer suitable for today’s business priorities and context… We need to move faster and deliver more”.
As a part of these proposals, it is also looking to reduce its inventory to £600m by the end of the year, bringing “high-fashion product” from design to site in under a month, which increases its ability to respond to demand.
Chief executive José Antonio Ramos Calamonte has said that the company is working “to speed up all of our processes to deliver the fashion, quality and prices that our customers want, when they want it.”
The e-tailer that has famously benefitted from fast, agile and tech-focused strategy is Shein.
Shein leverages big data and machine learning to analyze customer preferences, social media activity, and market trends to map demand and to create designs which cater to real-time consumer preferences.
They can then send this data to small-batch manufacturing facilities, which will produce a certain amount of clothes based on what they expect demand to look like. The tech strategy has allowed Shein to lower the individual cost of goods sold on an individual basis by between 20 and 40 per cent, and respond in real-time to consumer demand.
While it is difficult to directly compare Asos and Shein’s strategies, it’s clear that there is high consumer demand for immediate, on-trend designs, which Shein has excelled at and arguably made an ever-more essential part of a fast-fashion retailers business strategy – they’ve redefined the ‘fast’ in ‘fast-fashion’.
Asos have said it does not compete with Shein on price, and a spokesperson said that Asos have increased their tech team to “ensure we have the best fashion for our customers” by “reducing the lead time between selecting our range and making it available on site.”
“ASOS’ ability to bring this speed with the right balance of fashion and quality, is built on the many months of hard work our talented team of 100+ designers does behind the scenes, keeping on top of trends and spending countless hours refining each design from initial idea to final product – ensuring we create exciting, trend forward outfits that our customers love.”
‘We want the best product at the best price‘
But Asos will have to do more than just speed up its reaction to trends to win customers. Recent decisions such as the removal of its free returns for high-frequency returners have sparked outrage on social media, and there have also been complaints of poor quality clothing and mis-sizing.
One customer named Charlotte wrote on X, formerly Twitter, in light of Asos’ change to its returns policy: “The problem for large returns is the fact half of your stock is ill fitting and poor quality.
“I’ll take my custom somewhere else.”
Asos are, however, clearly making an effort to respond to customers: the company said in a trading update that it had made improvements to sizing and how clothing and accessories are displayed on product pages.
The company has also said it wants to focus on costs, its relationship with customers, and products as part of a turnaround strategy it has called ‘Back to Fashion’.
Ultimately, who wins in the retail space comes down to which brand can offer “the best product at the best price with the best experience”, chief executive of customer research firm Forsta, Kyle Ferguson, said. “[It’s about] delivering that trifecta of value.”
“The experience matters [too], from pointing and clicking [to] inventiveness. All of these things make a big, big difference… It’s not necessarily rocket science.”