Monday 17 June 2019

Internet-savvy shoppers take ASOS to new heights

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John Lynch

There must undoubtedly be a declining number of people who can cast their minds back to the great innovations of the 1990s and the promise that the '' bubble held out for the world. We were sure (because everyone, commentators, investors and analysts, told us) that we were in the midst of a series of technological explosions.

Unthinkable concepts, (including being able to do your shopping on the telly,) were being opened up for us all.

The bubble, of course, soon became a fond memory but I was reminded recently that there are echoes of those times past in at least one successful British online operator which now calls itself ASOS and is currently sporting an annual turnover of £1.9bn (€2.2bn).

ASOS originally started out as AsSeenOnScreen and was the brainchild of two entrepreneurs, Quentin Griffiths and Nick Robertson, whose idea was to sell clothes and accessories on the internet. Looking at where ASOS is now, the idea might seem a brilliant wheeze because today the company is a very successful online fashion and beauty operation.

It offers women's wear, footwear, accessories, jewellery and beauty products, having a large portfolio of branded and own-brand products. Its website targets the UK, Australia, US, France, Germany, Italy and China.

Fashion is now one of the most popular online categories and accounts for one quarter of all UK spending on clothes. This trend towards online fashion is causing difficulty for high street chains. Marks and Spencer, New Look and Next and, across the Atlantic, Macy's and Sears are all feeling the effects of the online competitors.

Unlike high street retailers, companies like ASOS are relatively easy to run. With a large stock of products in its handful of big warehouses, it needs fewer staff to make a sale. Latterly ASOS has ploughed the proceeds of its growth into improving its critical delivery systems. It is of the opinion that the increased capacity will enable it to handle £4bn (€4.6bn) worth of sales, double that of today.

Internet shopping has pretty much crept up on everyone, but there is no doubting its immense impact and the threat it poses to the old retail infrastructure.

It is hard to believe that today with a market value of £6bn (€6.7bn), the 17-year-old ASOS is close to that of the 114-year-old Marks & Spencer, the UK's biggest retailer of clothing. This is in spite of the fact that ASOS has only one-fifth of Marks & Spencer's sales.

The explanation is the levels of growth. In the last decade M&S grew by a third, ASOS by almost eight times.

The company has benefited from a young core customer base and the migration of spending from the high street to the mobile phone. Anyone who has any contact with the category of the population known as millennials will find it is no surprise to learn that they spend three hours each day on their phones, and 80pc are online shoppers.

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The company targets the internet-savvy twentyish category looking for the designer looks of celebrities. As a result, it sells cutting-edge fashion and offers a wide variety of fashion-based content. The group has 5.4 million active customers, eight offices worldwide, three global warehouses, and 850 brands. In addition it has 20 million social media followers, customers in 230 countries and 4,000 employees.

ASOS sales last year totalled £1.88bn (€2.1bn), up 34pc. The group is fast becoming an international company as two-thirds of its sales are now outside the UK.

In the UK sales are buoyant with a sizeable jump in turnover to £700m (€800m) - up 16pc. But the performance in Europe has been very much more impressive, with sales at £540m (€618m) - up almost a half. Sales in the US, often a graveyard for UK retailers, were a healthy £260m (€297m).

ASOS was floated on the alternative market in 2001 at 20p a share. Today its shares trade at £72 (€82) with an extremely high price earnings multiple of 60. This is hardly enticing and is enough to keep investors on the sidelines. However, it is a bet in the future of retailing and the fashion industry.

Nothing in this section should be taken as a recommendation, either explicit or implicit to buy any of the shares mentioned.

Irish Independent

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