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Asos growth too reliant on discounts, analysts warn

Asos must change its approach to discounting to avoid future profit warnings, according to City analysts.

The etailer issued a profit warning last week, stating that full-year earnings would rise by around 4.5% instead of 6.5% and citing a slow-down in international sales and increased promotional activity.

Total group sales reached £248m, with growth slowing to 26% for the three months to May 31, from 34% for the same period in 2013. International sales growth slowed to 17% from 28%, with growth outside Europe and the US dropping to 1%, compared with 16% during the same period in 2013.

Chief executive Nick Robertson said: “Profit performance for this financial year is not what we had hoped for.”

Verdict Retail analyst Honor Westnedge told Drapers Asos was still seeing impressive growth, but noted it was “resorting to discounting to drive sales”.

“[Asos is] doing extremely high discounting on current season stock, as well as new stock. But what isn’t in its control is the strength of the sterling. That’s something all retailers have suffered from and, as Asos becomes more of a global player, it will have to take that into account,” she said. “It needs to look at its strategy with regards to promotions and discounting. At some point, it will have to settle for lower growth if it will protect profitability.”

John Stevenson, retail analyst at Peel Hunt, agreed: “Having the sales mix shift back to the UK has affected margins. Promotions have been snapped up in the UK, where it doesn’t need it. To an extent, it’s wasted discounting, because it hasn’t helped international sales.”

Matthew McEachran, analyst at N+1 Singer, warned that consumer confidence had “collapsed” in Australia in particular where local competition had picked up. “UK retailers had a bit of an easy ride because the price difference was so great. Australians knew the brands from visiting the UK and they were getting more choice, cheaper than they could locally. That has changed over the past few years, and particularly in the last six months,” he said.

Brands and retailers stocked on Asos have complained of the etailer’s aggressive discounting strategy. “We are trying to sell full-price, but clearly customers are still stimulated by promotions and markdowns. Asos in particular has been very aggressive with its sales, running 20% to 25% discounts,” said the chief executive of one womenswear retailer, adding that he would have to reconsider selling through Asos if it continued with such regular promotions.

Readers' comments (3)

  • I've been starting to think that - I'm on their email list and every other day I receive a mail with 20% or 25% off. Does anyone actually buy anything full price from them?

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  • It amazes me how some reps brag about how their brand is sold to ASOS as a positive. They're discounters for christ sake! They're no better than market traders with their philosophy which to me is the lowest form. If they were any good they wouldn't have to discount, so clearly there is a problem.

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  • Perhaps the root cause of discounting is over zealous buying?

    With targets to achieve, I suspect there is a lot of stock waiting to be purchased, forcing discounting. Particularly with seasonal items.

    Let's be honest, there are not (m)any businesses who target to sell less... and as competition increases, so does the amount of product available.

    While it works for food (we can all eat more), you can only wear one dress at a time! So clothing retailers just get left with more unsolds and higher returns.

    Asos has certainly helped the consumer get better prices. Though to the detriment of the industry, now and in the future. Lower margins for everyone means less investment as a whole. For the record, I expect Amazon and supermarket multiples will make it more competitive yet.

    The solution? Better understand your customer... Better target what you sell them (so it doesn't come back)... Be different by doing 'customer service' properly.

    Then use the data and invest in those who understand the customer to make more informed buying decisions.

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