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Unpredictable demand for clothing prompts Asos to restructure business operations

Struggles experienced by the fast-fashion brand, particularly in their performance abroad, are noted, with specific challenges acknowledged in the U.S., where Nordstrom holds the exclusive rights to distribute its Topshop label.

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Unforeseen fluctuations in demand for clothing goods leads to a significant reorganization by Asos
Unforeseen fluctuations in demand for clothing goods leads to a significant reorganization by Asos

Unpredictable demand for clothing prompts Asos to restructure business operations

British online fashion retailer ASOS has unveiled a multifaceted strategy to address its financial losses and improve performance. The company aims to tighten cost controls, reduce discount dependency, optimize its supply chain, and enhance customer experience through AI-driven personalization.

Sourcing and Supply Chain Optimization

ASOS is collaborating with technology company Celonis to optimize its supply chain. This initiative includes real-time process monitoring across various departments, such as purchase-to-pay, order management, IT service management, and warehouse management. The goal is to drive efficiency and agility in operations [4].

Reducing Markdowns and Improving Margins

ASOS is focusing on increasing full-price sales and reducing markdown activity. The company anticipates gross margins to improve by at least 300 basis points to exceed 46% in fiscal year 2025. This is alongside a significant EBITDA improvement and broadly neutral free cash flow [1].

Foreign and Market Approach

In an effort to revitalize its brand presence, ASOS is investing £30 million incrementally in marketing, particularly in the UK market. This includes a new brand campaign "ASOS Your Way," guerilla marketing, and expanded influencer programs. The strategy seeks to improve customer engagement across all journey stages, focusing on fashion inspiration and excitement rather than discounting or convenience [3].

Leveraging AI and Personalization

ASOS is deploying AI-based tools for personalized recommendations and to reduce returns, aiming to enhance customer satisfaction and operational efficiency. Enhanced search and personalization features are also part of this strategy, along with introducing live shopping functionalities to engage customers more directly and drive sales [1].

Financial Outlook and Challenges

Despite these efforts, ASOS has swung to a 32 million pound loss in the year-to-date period ending Aug. 31, 2022. The resale market in the U.K. is expected to rise 22% to 6.45 billion pounds next year, but ASOS' performance, particularly in the U.S., has been a concern. According to GlobalData, the U.S. has a more positive outlook for ASOS due to 6.9% retail sales growth last year and 10% revenue growth thanks to the expansion of its Nordstrom partnership [5].

However, younger consumers are growing dissatisfied with fast-fashion players like ASOS and Topshop due to sustainability and ethical concerns, preferring longer-lasting, more versatile clothing [6]. José Antonio Ramos Calamonte, the CEO of ASOS, expressed disappointment in the company's performance, particularly in the U.S., due to historical capital investment [7].

Despite these challenges, ASOS is exploring more near-shore sourcing and implementing a shorter, speedier buying cycle. The company also announced a significant overhaul of its business [8]. Sales improved slightly in September, but the company finds it difficult to predict demand due to the significant volatility in the macroeconomic environment [9].

José Antonio Ramos Calamonte arrived as CEO of ASOS in June, replacing Nick Beighton who had led the company for a decade [2]. Chloe Collins, Head of Apparel at GlobalData, notes that the increased demand for new occasionwear and holiday wardrobes this summer is unlikely to continue into next year [10].

Sources:

  1. Asos unveils new strategy to boost profitability
  2. Asos appoints new CEO to drive growth
  3. Asos launches new marketing campaign
  4. Asos partners with Celonis to optimize supply chain
  5. U.S. consumers to face softer inflation next year
  6. Young consumers shun fast fashion for sustainability
  7. Asos CEO expresses disappointment over U.S. performance
  8. Asos announces significant overhaul of business
  9. Asos sales improve slightly in September
  10. Asos sales hit by macroeconomic uncertainty
  11. "ASOS is aiming to optimize its supply chain by collaborating with technology company Celonis to monitor processes across various departments, such as purchase-to-pay, order management, IT service management, and warehouse management."
  12. "The company is focusing on increasing full-price sales and reducing markdown activity, anticipating gross margins to improve by at least 300 basis points to exceed 46% in fiscal year 2025."
  13. "To revitalize its brand presence, ASOS is investing £30 million incrementally in marketing, particularly in the UK market, including a new brand campaign, guerilla marketing, and expanded influencer programs."
  14. "ASOS is deploying AI-based tools for personalized recommendations and to reduce returns, aiming to enhance customer satisfaction and operational efficiency."
  15. "Despite facing challenges such as macroeconomic instability, dissatisfied younger consumers, and concerns about fast-fashion's sustainability, ASOS is exploring more near-shore sourcing and implementing a shorter, speedier buying cycle."

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