Transformation projects squeeze profits at ASOS

ASOS saw its profits squeezed in the first half by increased costs due to investment in logistics and IT combined with a fall in gross margins despite a strong increase in sales.

The online retailer increased sales by 14 per cent to £1.3 billion, but pre-tax profit was down 87 per cent to £4 million.

Chief executive Nick Beighton said: “We grew sales by 14 per cent despite a more competitive market. ASOS is capable of a lot more. We have identified a number of things we can do better and are taking action accordingly. We are confident of an improved performance in the second half and are not changing our guidance for the year.

“We are nearing the end of a major capex programme. While this has inevitably involved significant disruption and transition costs, the global capability it now provides us gives us increased confidence in our ability to continue to capture market share while restoring profitability and accelerating free cash flow generation.

The company characterised full year 2019 as “the culmination of several years of transformational change for ASOS as we develop our logistics infrastructure and expand our global reach, while driving warehouse efficiency and reducing delivery costs through greater levels of local fulfilment”.

ASOS had to double staffing levels at its new US distribution centre in Atlanta because it underestimated the surge in demand after it became fully operational in February.

It said: “To help clear the backlog of orders, the US web site was pointed back to Barnsley before local fulfilment from Atlanta could be gradually stepped back up. The issues experienced within our US warehouse were caused by staffing levels rather than systems.

“Staff levels at the facility have been nearly doubled (to 1,532) and during the week commencing 25 March we restored our service delivery promise and full local fulfilment from Atlanta. We acknowledge we have disappointed a number of our customers and we have acted fast to rebuild their trust via targeted outreach.”

IN the UK, ASOS increased maximum daily output at its Barnsley distribution centre by ten per cent last year.

“Focus at this site is now on driving further efficiencies and maximising throughput. As part of this, H1 saw the installation of a dynamic buffer, representing a further step in warehouse automation. This technology predicts demand throughout the day, having these items picked and brought closer to the packing bench in advance, further reducing processing time as well as generating efficiencies in re-picking items from returns.

“Dealing with returns, our new facility in Doncaster is now fully operational as a UK and ROW facing site, increasing processing capability alongside the existing Selby operation. ASOS now has seven sites processing returns across five different countries. A new returns processing system is currently being implemented across our facilities which will improve productivity by c.10 per cent and remove the requirement for additional returns facilities in the medium term.

It is now testing the automation at its Berlin warehouse ahead of going live later this month.

“Automation go live will raise the throughput speed in this warehouse closer to levels achieved at our Barnsley distribution centre, in turn allowing us to improve our next day delivery ordering cut off times across Germany. Next day delivery is already available to customers across the EU and is a competitive proposition to our customers. The increase in throughput speed will therefore allow greater volume to be routed via road freight, generating further delivery cost efficiencies alongside the reduction in labour cost per unit.”

Following completion of the current investment programme, ASOS said it would have “built world class automated facilities to our own specific needs in three regions to support sales growth for the next two to three years. From here we will focus on optimising efficiency across the global warehouse footprint we have built.”

Looking ahead, Beighton said: “Global online fashion is a growing, £220bn+ market. We now have the tech platform, the infrastructure, a constant conversation with our growing customer base who love our own great product and the constantly evolving edit of brands we present to them. We believe that ultimately there will only be a handful of companies with truly global scale in this market. We are determined that ASOS will be one of them”