Analysis: Asos targets global opportunities with supply chain changes
In China, Asos says it is “just at the start of the journey”
Online fashion retailer Asos believes the next leg of its investment requires the group to flex its supply chain to access a further GBP1bn (US$1.66bn) of international sales.
Asos has been busy ramping up investment in its operations of late, building capacity to access global market opportunities. This fiscal year, it has "substantially accelerated" its next build phase, which the firm said will create a business capable of accessing GBP2.5bn of this global opportunity.
"We've always viewed our business as continued work in progress, and we are investing to meet the growing opportunities and the demands of our global customers," CEO Nick Robertson told analysts on the firm's earnings call this morning (2 April). "The key feature of this, has always been, and will always be a 'build and grow' approach."
Supply chain changes
To date, Asos has made a number of key changes in its supply chain. The largest of those is the investment in its Barnsley warehouse facility, which has received GBP30m of its GBP36m capital expenditure spend.
"It has the capability for around GBP2.5bn of net sales and will form the future spine for our global fulfillment," Robertson noted.
Asos has extended the facility by 25%, adding 150,000 sq ft of floor space, doubling the group's stock holding capacity to around 22m units. It is expected to improve pick productivity from 70 items per hour to 250.
"The next leg of our journey requires us to flex our supply chain and strategy accordingly, i.e. put the capability closer to our customer base," Robertson told analysts. "This will give us the benefit of faster deliveries and faster refunds, all of which are critical in driving future sales and customer engagement."
While CFO Nick Beighton added that this will involve "several strands". The first of those will be the opening of the group's 'Euro hub' warehouse in Berlin, Germany.
"We'll take ownership of this facility next month and we expect to be fully operational by the end of the financial year. This will initially have the capability of handling around 6m units of stock."
In the US, Asos has moved its warehouse to Ohio and is now fulfilling around 20% of the country's orders. Its medium-term target is to increase that to 30%. "That gives us a much better customer experience, ie faster deliveries and associated cost reductions from doing it," Beighton explained.
The third strand will be China, where Asos recently opened a warehouse in Shanghai, giving the firm a logistics hub.
Robertson told analysts: "China is a start-up business and it will take time. It's hard to quantify the scale of the opportunity at this stage, but common sense says we should be looking to build a business at least the size of the UK in the medium term."
At present, asos.cn has 3.5k products available, compared to asos.com with 75k.
Robertson said Asos is "just at the start of the journey" in China, and investment for the remainder of the year will be on building infrastructure and capability.
"The next stage is to increase our product ranges, adding more brands and building the inventory to better reflect the Asos proposition. We continue to build our presence in locally-relevant market channels and we are planning to launch on the Tmall e-commerce platform next month, which will provide an established gateway to further growth brand awareness and market share in this important market."
Asos also launched in Russia in May last year, where trading has been "encouraging" to date.
Robertson told analysts the weakening of the Russian Rouble has not helped trading, but added: "Our sales performance and the unusually high basket size has made this a hugely profitable territory for us. The market is not as advanced as the US or Germany so the local proposition is limited, but we believe Russia offers us a significant opportunity to us in the short to medium-term."
The chief executive pointed to 'cash on delivery' as a huge opportunity in Russia, and will be introduced "at some point" this financial year.
He added: "These developments in our international supply chain give us the flexibility to access a further GBP1bn of international sales.
With investment plans already in place for this year, Robertson said Asos has no plans to launch any new websites this year, but suggested potential new markets were in the very early planning stages.
"We are starting to do the background work for markets such as Japan, South Korea, the Middle East, India, and Brazil, amongst others, ready for the next phase of growth."
At the present time, however, Robertson said the firm's sights are set on the next target: laying the foundations for building the capacity for a business 2.5 times bigger than the current one.
"We must do this, as the global opportunity for Asos is enormous. Our growth is only limited by the speed at which we can develop the capability to build the infrastructure to support it.
"We are gaining market share in every territory that we operate. We are in the middle of a huge programme of change and it will not be without its disruptions, but the belief in the business and its long-term potential are as strong as ever."
- Expensive US dollar hitting H&M sourcing costs
- Enthusiasm for tech in outdoor apparel on rise
- 2015: Welcome to the new fashion consumer
- Apparel industry gains traction says IAF chief
- Outlook 2015: What's happening with sourcing?
- Kanati pulls production out of Pakistan
- Gap to close Piperlime division
- US takes final step to WTO TFA implementation
- Hanesbrands invests $1.5m in US hosiery plant
- EU exploring responsible garment supply chains
- Myanmar's Garment Sector - Opportunities & Challenges in 2015
- Outdoor performance apparel: peaks, valleys, and green fields
- Apparel Retail: Top 5 Emerging Markets Industry Guide
- Li & Fung Limited (494) - Financial and Strategic SWOT Analysis Review
- Management briefing: Outlook 2015: Apparel industry issues in the year ahead