In 2015, the US represented 11% of Asos revenues

In 2015, the US represented 11% of Asos' revenues

UK-based online fashion retailer Asos has an opportunity to capitalise on the growth of the US apparel market by investing in pricing, its product range and local fulfilment infrastructure, analysts believe.

In 2015, the US represented 11% of Asos's revenues at GBP120m (US$146.3m), with sales to the US growing 46% over the past 12 months, according to Bernstein analysts, who expect this to be the fastest growing region for Asos over the next five years.

Indeed, in its latest third-quarter the US market saw the largest sales gain in Asos's international markets, increasing 45% to GBP68.3m. 

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The company's business in the US, however, remains nascent at present. It launched a country-specific site for the US in 2010. Based on Euromonitor data, this suggest 0.4% market share in the US online apparel and footwear market, which Bernstein says is "significantly" lower than its share of around 7% of UK's online apparel and footwear market. The analysts point out the retailer's 1.4m US customers represent only 1.6% of the overall 15-34 year-old population in the country.

According to Euromonitor, the US apparel market was worth around GBP223bn in 2015 and is expected to grow at a CAGR of 2.6% to GBP253bn by 2020. Online penetration of apparel and footwear is expected to rise from 13.3% today to around 20% by 2020, with the online apparel and footwear market growing at a CAGR of 12% to reach GBP52bn by 2020 from GBP30bn today. 

Data from the US census also suggests spending by Asos's customer group is likely to grow even faster. There are around 88m Americans within the company's target customer group: millennials aged between15-34 years old. According to ATKearney/NPD estimates, this demographic currently represents 38% of total US apparel spending. 

US millennials are highly engaged in online shopping, with UPS statistics suggesting over half of their purchases are made online. Compared to the older generations, they have also been more active in adopting m-commerce. 

Bernstein analyst Jamie Merriman suggests Asos can drive sales in the US by capitalising on this growth. "There is a long path of sales and earnings growth ahead for Asos. In the medium to long term the biggest opportunity for Asos in the US is to drive sales growth through improving the US offer to match Asos's UK proposition. Management's plan to build out local fulfilment infrastructure should allow them to upgrade their delivery proposition and provide another boost to growth in the US. Improvements in local content and marketing should also incrementally improve Asos's US offer."

He also points to investment in pricing and extending the product range for the US market as key to driving sales. 

Positively, Merriman says Asos has an advantage in the US with no real Asos-equivalent in the country focused on offering fashion to millennials. 

"Today, the only apparel-focused aggregators within the top 20 US online apparel players are either targeted towards the mass market (Macy's, Zappos, Kohl's, JC Penney) or focused on luxury spend (Nordstrom, Neiman Marcus and Saks Fifth Avenue). Others within the top 20 are either general retailers or single-brand websites."

Below the top 20, he points to similarly sized peers that target a sub-segment of millennials, such as that provides an aspirational luxury, LA-style product range at a much higher average selling price to Asos, and Nasty Gal, which predominantly targets female millennials. 

"We believe Asos' offer of mixed fashion styles for all types of 20-somethings remains unique in the US," he says.