ASOS profits fall as warehouse developments fail

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ASOS has fast become a clothing giant in the UK as well as across Europe and the US. For the year ending August 31, 2019, ASOS reported a pre-tax profit of £33.1m, a 68% fall year-on-year. Despite the loss in profit, sales rose by 15% in the UK, 12% in Europe and 9% in the US for the year, indicating the problems lay in the operations. ASOS explained its global platform growth was ‘regrettably more disruptive than originally anticipated’ whilst the Guardian cited ASOS’ issues as IT chaos at its overseas warehouses.

ASOS acknowledged its warehouse developments in the US and Germany were not adequately planned and that retail sales had been lower than expected due to challenges opening a new warehouse in the US and technological updates to the Euro Hub. CEO, Nick Beighton, commented: “Clearly last year did not go as well as we planned. With hindsight, we were over-ambitious in tackling two international warehouses at the same time and our internal capabilities and bandwidth hadn’t kept pace with the changing scale of our business.”

The company issued two profit warnings over the year, one before Christmas 2018 and the second at the start of July but gave little away to the causes. The 2019 full-year financial report confirms ASOS expansion plans had proved challenging. Nick Beighton, said: “The major overhaul of our infrastructure has been bumpier and taken a lot longer than we originally anticipated.”

The opening of the Atlanta, US warehouse in February, suffered ‘teething problems’ as the company failed to foresee the lead times for stock entering the US whilst warehouse robot installation and new software implementation at the Euro Hub in Berlin, Germany proved costly as stock availability was impacted. These faults meant sales were impacted by inefficient processes and poor fulfilment, but it was the correction costs that hindered profitability.

Inventory management and logistics operations are vital components to all successful retailers, traditional or online. At the centre of this, all retailers must ensure stock is in the right place at the right time and customers can access it. For pure plays, warehousing efficiency is crucial, more so than traditional retailers as a warehouse is the sole location of stock and underpins their business models. ASOS seemingly struggled with its warehouse expansion, and became overwhelmed, which ultimately undermined its business model.

ASOS is insistent that the root cause of operational issues have been resolved. As the peak season approaches it shall be interesting to see how its logistics operations hold up.

Source: Transport Intelligence, October 17, 2019

Author: Holly Stewart

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