Strategic growth in the fashion

retail industry
An asos.com case study

Page 1: Introduction

asos.com is the UKs leading online fashion store for women and men.
Launched in 2000, the online retailer targets fashion conscious 16-34 year
olds. On asos.com there are 9,000 products available at any one time, with
450 new fashion items added every week. These include womens fashion,
menswear, accessories, jewellery and beauty products. asos.com attracts 3.3
million unique shoppers every month and has 1.8 million registered users.

An online service of
this scale requires a substantial background operation to fulfil orders and to
provide customer service. Five years ago, asos.com had just 550 square
metres of warehouse space. Today, to meet growing demand, asos.com now
has 32,500 square metres of warehouse space equivalent in area to nearly
five football pitches. In April 2005, asos.com employed 47 permanent staff. By
February 2008, it had 250 employees. These human and physical resources
are needed to meet rapidly increasing demand. Sales increased by 90% year
on year for the 12 months to 31st March 2008. In April 2008, there was a daily
average of 220,000 unique visitors to the asos.com website. The growth in
sales translates into profit. Group profit is likely to be in excess of 7 million.

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Page 2: Ownership and management structure

asos.com is a public limited company (plc). This means that the business is
owned by shareholders and that its shares can be purchased by the general
public. asos.com shares are traded on the Alternative Investment Market
(AIM), which is part of the London Stock Exchange.

Joining AIM has several advantages for a growing company such as

asos.com. AIM-listed companies do not need to comply with the strict rules
that must be followed by businesses listed on the main London stock market.
They do not need to meet any size threshold, either in terms of market
capitalisation or the numbers of shares that they issue. This means it is easier
and cheaper to obtain an AIM listing. It provides smaller companies with a
chance to raise capital through the sale of shares. This capital can be used to
finance growth.
As a limited company, asos.com is required by law to have a memorandum of
association and articles of association. A memorandum of association sets
out the name and purpose of the company and the number of shares it can
issue. The articles of association sets out the rights of shareholders, the roles
of directors and other factors that relate to the control and management of the
company. These documents establish a company as a legal entity. Without
this legal framework, the business would not be able to issue shares.
The asos.com board consists of two non-executive directors and three
executive directors. Non-executive directors do not have day-to-day
operational responsibilities for the business. They are invited to join the board
because they bring experience and qualities that can guide the strategic
direction of the company.
asos.com | Strategic growth in the fashion retail industry

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Page 3: Growth
Most companies seek to grow. They want to increase profits for their
shareholders. They also want to increase the overall volume of business
because this can lead to significant reductions in costs. These are known as
economies of scale. For example, as asos.com grows, it will require a larger
warehouse and distribution operation. As it handles more sales transactions, it

will find it easier to make these operations more efficient. It will also be able to
get better deals from its suppliers through ordering goods and services in
larger quantities.
A company can grow in several ways. It can grow by simply selling more of its
products. This is known as internal or organic growth. It can also grow by
taking over or merging with other businesses. This is known as external
growth. It is quicker to expand a business through external growth. However,
a company would need finance to fund any acquisitions.

Integration
A company that seeks to grow through acquisition can adopt two main
strategies.
A company that seeks to grow through acquisition can adopt two main
strategies. It can pursue a strategy of horizontal integration. This occurs when
a company takes over, or merges with, a direct competitor. For example,
when the supermarket chain Morrisons acquired the rival Safeway chain in
2004, it simply created a larger supermarket chain. This was a classic
example of horizontal integration.

Companies can also seek to grow through a strategy of vertical integration.

This is when it acquires a business at a different stage in the chain of
production. It may acquire businesses that were previously its suppliers or its
customers. For example, a furniture manufacturer might purchase a chain of
furniture stores so that it can sell its products direct to consumers. It would
previously have looked to sell its products to this retail furniture business.
Acquiring or merging with customer businesses is called forward vertical
integration.
The manufacturer could also choose to merge with one of its suppliers, such
as a timber merchant. This would give it more control over one of its key
inputs. Merging with suppliers is called backward vertical integration.
asos.com has achieved rapid growth organically. It has not grown by
acquiring other businesses. Instead, it has grown by increasing its customer
base, number of brands and products available to buy at any one time.
Moreover, it has grown rapidly without incurring the problems that this can
cause for some businesses.

Impacts of rapid growth

At first glance, rapid growth might seem to be a positive occurrence. However,
it can cause problems and a firm that grows too quickly can run into
difficulties. A surge in demand generates additional costs. It costs money to
fulfil orders. For example, a business may require extra staff to process orders
or it may need to buy in more stock or supplies. A business may have to meet
these expenses before it receives the proceeds from the additional sales, and
this can lead to cash flow difficulties.
Even if the company has enough capital to finance a surge in demand, it may
still face problems. It may run into logistical difficulties and simply lack the
short-term capacity to fulfil orders. It may not be able to make products
sufficiently quickly to meet demand. This sometimes happens in the run-up to
Christmas, when a manufacturer cannot produce enough of that years musthave toy or gadget. A business that fails to meet demand risks losing
customers. It can take a long time to repair a damaged reputa

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Page 4: Improving the business

asos.com's strategy of organic growth has shown substantial results. It has

managed to satisfy increased demand. The company has also increased its
market share. asos.com has recognised that the conditions were right for an
online retail business in the fashion retail sector.
The company has used the Internet as the primary growth tool. It has tapped
into the rapidly expanding online retailing market. As research in 2007 by the
online retail consultancy Interactive Media in Retail Group (IMRG) showed:
total online spending in the UK reached 30.2 billion in 2006
the number of UK online shoppers grew from 16 million in 2003 to 25 million
in 2006, an increase of 56 per cent over four years

Internet access grew by 45 per cent in the same period, with 42 million people
having access in 2006 compared to just 29 million in 2003
the number of broadband connections more than tripled in four years, by 2006
there were more than 12.7 million UK broadband connections
asos.com targets its offer at a specific market segment of young (16-34)
fashion-conscious consumers. This market segment now accounts for 20% of
the Internet shopping population in the UK. According to the market research
organisation Mintel, women aged 2024 are more likely than any other
segment to spend their money on clothing and footwear. The average spend
per head on clothing increased by 76% in 2006 to 1,208. asos.com offers an
extensive and diverse range of products for men and women. Its departments
cover:
own brand clothing
brands high-street and designer
footwear
accessories, for example, sunglasses
jewellery
swimwear
The clothing ranges also cater for narrow market segments, for example, for
petite women (under 53?). As well as its own brand, asos.com also enters
into collaborations with designer labels. This enables it to provide well-known
brands that appeal to its young, fashion-conscious target market. asos.com
stocks over 400 brands including:
Diesel
All Saints
Fred Perry
Levis
Adidas
French Connection

However, asos.com would not have grown so rapidly if it did not offer a
pleasurable shopping experience. The first step in any online business is to
ensure that the website offers something of real value to consumers,
something that cannot be obtained by visiting a store or a shop. One central
question dominates asos.coms planning - why would consumers choose to
buy clothes online when they could visit a shop and see, feel and try on
different items? asos.com had to create an online shopping experience that

offered convenience, choice, interesting styles, competitive prices, all

complemented with high levels of customer service such as prompt and
reliable delivery.
Heavy investment in the website and its underpinning technology has been
vital. Behind the technology and the website, asos.com has invested heavily
in ensuring that customers get what they want from the online store. Internet
shoppers have very high expectations. asos.com knows that customers must
be pleased with their shopping experience.

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Page 5: Communication to support growth

The structure of a business organisation usually alters as it grows. When a

company is very small, a manager tends to take on most managerial
functions. As a company grows, it often introduces new layers of management
and organises itself into specialist departments. As it has expanded,
asos.com has developed a more hierarchical organisational structure, with
individual departments responsible for specific functions such as
warehousing, product design and merchandising.
asos.com works in a rapidly changing market. It must keep up with
developments in web technology. Customers can now track their orders
online. Shoppers can refine the products they view on asos.com, by choosing
colours, sizes and brands to suit.
The company tries to keep its website current by adding articles of interest to
fashion conscious shoppers. This content is refreshed every week to retain
the customers attention.
To enhance the shopping experience, asos.com has increased the size of
product images on the web by 250%. It has also used a catwalk feature for
womens wear. This shows how the products fit and move to give the
customer the best representation. The asos.com Style Blog is updated daily.
This provides visitors to the website with features such as Daily Shop,
Catwalk trends and the latest fashion and celebrity news.

The company uses a number of other communication channels to drive

growth:
It has increased the asos.com monthly magazine to 116 pages. The first three
issues generated more than 1.5m in sales with an average response rate of
9%. This is higher than the industry average for this type of promotion. A
menswear version of the magazine launched in May 2008, featuring practical
style advice, entertainment news, band interviews and aspirational fashion
stories to appeal to young male consumers.
It emails a newsletter twice a week to 1.8 million people who have chosen to
receive it. This significant investment in creative resources has helped to
increase sales from the newsletter by 137% in 2007.
As part of its PR campaign during 2007 there were 2,236 fashion editorial
pieces about asos.com and its products in the consumer press. This was an
increase of 59% against 2006.
asos.com takes a best friend approach to help build customer relationships.
This means that customers recommend other people. Customers feel they
have a personal relationship with asos.com and therefore want to share this
with their friends. This type of word-of-mouth recommendation gives results
above the industry average. Research on traffic to the asos.com website
indicates that around 15% of customers visit the site following a personal
recommendation. Furthermore, in a survey to find out levels of use of the
customer magazine, 60% stated that they share their copy of the magazine
with at least two other people.

In the last customer survey, 73% of customers stated that they would
recommend asos.com to a friend.
As it continues to grow, asos.com needs to make sure that customers still
receive the highest standard of service. Many customers still prefer to deal
directly with someone one to one. It has a team of 30 customer service
advisers. This team responds by email to all customer enquiries, such as
product questions, stock requests or delivery status. asos.com has worked
hard to reduce the average response time for customer enquiries from six
hours to one hour.

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Page 6: Conclusion

asos.com has achieved a remarkable

growth since it first began trading in 2000. Following the dot.com bubble of the
late 1990s, many people doubted the potential of Internet-based retail
businesses. It has taken careful planning to ensure that asos.com meets
customer needs. The business has grown organically. It has expanded its
market share, taken on more staff, and grown sales and profits. This growth
has been achieved through systematically planned investment in both people
and technology.

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ASOS CIO talks about the nightmare

of aligning technology with business
MAY 7, 2014 BY DEREK DU PREEZ1

178

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Given that the UK has fully embraced

e-commerce and internet shoppers now contribute more to the nations
GDP than other country in the G20, it is perhaps unsurprising that it
spawned one of the worlds leading online retailers ASOS. When
launched in 2000, the website was aimed at providing consumers a tool to
buy clothes and accessories that had been worn by celebrities, or
otherwise items As Seen On Screen, but has since grown to a global online
fashion store that has over 65,000 products that are targeted at the 20somethings market. ASOS now has eight local language websites (UK, US,
France, Germany, Spain, Italy, Australia, China and Russia) but also provides
free shipping to 234 countries in total. Its website attracts 29.5 million
unique visitors a month (excluding mobile) and has 14.8 million registered
users. With the Groups chief executive recently claiming that 1 billion in
annual sales are firmly in the companys sights, ASOS is truly an online
giant.
However, this poses a serious challenge for the person in charge of the
companys technology in this case, Peter Marsden. Speaking at SDLs

Innovate conference in London this week, he said that online fashion

shopping is more difficult when compared to other retail categories
because ASOS still has to compete with the high street, where when it
comes to clothing, consumers often like to try before they buy. This means
that if online fashion retailers are going to compete with the physical
outlets, they have to make the customer experience as seamless as
possible this doesnt just mean a fancy website and mobile app, but also
unrivalled delivery and next generation payment options. Marsden said:

We have got to offer a much better experience, as consumers are not

going to be able to see it and touch it until its their hands. They have got
to be able to return it as seamlessly and quickly as possible. Payment
options, delivery options every customer experience has got to be right.
Not just customer touch points like the website and the app. We have got
a long way to go until we get there.
Marsden was speaking at SDLs conference because ASOS is using the
companys Fredhopper platform to help customise and personalise the
consumer experience for shoppers, depending on which location they are
based in and which device they are using. For example, a shopper in
Germany is likely to want a higher quality product than a shopper in the
UK, according to Marsden, and being able to deliver results based on
specific user information should help to drive sales. A lot of this comes
down to search, where ASOS found that consumers that search for goods

are 30 percent more likely to buy than those using the sites navigation

functions.
SDLs Fredhopper is being used to improve this search function, where if a
shopper has been to the site before and made purchases, they will be
delivered personalised results that hopefully best reflect the buyers needs.
Previously ASOS had only been able to deliver up to 1,000 results, even if
there were 30,000 available, and they wouldnt necessarily be the best
available option. Marsden said:

Search is hugely important to us we are starting to use personalisation

and recommendation engines so that once you log into our site, we will
remember your size, what brands youre buying, what people similar to
you are buying. This isnt to push stuff onto you, but to give you a helping
hand.

Although Marsdens insights into the companys technology developments

were interesting, I thought his comments about how he operates as a CIO
in a fast paced, online environment were more pertinent.

You dont have ten years anymore

Shortly after Marsdens presentation began he didnt waste time to tell the
audience that his job is a bloomin nightmare because of the challenges
that come with aligning a technology build and investment with the
strategy of the business, which in this day and age can iterate every couple
of years. He said that a lack of time causes him endless problems, and this
is largely because of how businesses now plan for the future.

Think about business strategies twenty years ago, I remember writing a

business plan for a bank I helped launch called Egg in the early 90s, and it
was a ten year business plan. At that point the common logic was you
write your business plan, you write your business strategy, and every other
functional strategy is subservient to that. So you write your business plan
and then you do your technology strategy.
The problem is that the world has now changed; how many companies
now have a business strategy that lasts more than two to three years?
Certainly if you are an e-commerce business, the business strategy changes
really quickly. Technology on the other hand still takes a long time to
build, so if a business strategy is lasting two to three years, can you
imagine if I went to my CEO and said Ive got an IT strategy that lasts two
to three years? Then we will throw away that stuff and build some more
stuff?
Marsden said that no matter what anybody says, this short term view for IT
just isnt realistic and technology investments are still looking at a life-span
of at least five years. He said that this gap between business strategy and
IT investment is widening because of the rapid changes in the consumers
expectation of how they experience and interact with online products.

The customer expectation of their experience with our products is

regularly changing all the time we are raising the bar of customer
experience. So even if we have something that looks great today, we know
it has to change, so I have to make sure that the technology platform that
has been put in place is flexible enough to change on a regular basis.
That is really, really hard. Speed of change is the hardest possible thing.
Technology has to be designed now, thinking about customer experience
and how that experience might change thats a huge headache for me.
This headache, according to Marsden (and I have to agree), is even worse
for companies that have a long history and are dealing with legacy
applications and systems that are so deeply embedded into a companys
processes that incorporating agile changes is near impossible. As each year
goes by, he said, it becomes harder and harder to maintain flexibility.
Marsden believes that overcoming this challenge is largely down to how
the technology function is structured within the business where IT must
sit with departments, such as marketing as well as hiring people that
get business strategy.

So what do we
have to do now? We have to hire IT folk that can talk about business. That
can think about what is next, not just ones that can be told what to do.

They have to be engaged with where the business is going and what it
might change to. Technology isnt just a cost, it isnt hidden in our
business it is the shop front. I have to be the heartbeat of our
organisation.
And its not about outsourcing, if any of you guys have a great experience
of outsourcing technology great, but thats rare. To me having great
technology people that are part of your business makes a huge
difference.
And to all you CIOs that like to hide away from other departments and be
locked away near the servers? Marsden has some advice for you

From my perspective I have to be out there trying to understand where

each department is trying to get to, where the business is trying to get to,
because every decision I make could be hindering where they are trying to
go in the future. If I dont have that crystal ball I could really be
constraining my organisation.
We have to be truly agile and collaborative, I have to work right alongside
my colleagues not in a separate department or a separate building. My
team sits right with our marketing team, which we have a great
relationship with. They understand our constraints and we understand
where they are trying to get to.

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Derek du Preez
Derek du Preez has spent the past few years defending the needs of the
end-user and helping vendors understand how they can better serve their
buyers' technology and business needs. He also loves to bother
governments about all things digital.

Interview: Asos technology boss on its IT

investment plans
2 April, 2014 | By Rebecca Thomson

Asos is investing millions in its IT. Chief information officer Pete Marsden
explains how he plans to make sure its technology is underpinning its
phenomenal growth.
Asoss first half results dont, at first glance, look as glittering as its financial
announcements normally do.
Pre-tax profits fell 22% to 20.1m in the six months to February 28, despite sales
surging 34% to 481.7m. But the reason behind it is a renewed vigour in its IT and
infrastructure investment a total of 68 million is being invested during the current
year in logistics, IT and the Chinese site.
Chief information officer Pete Marsden is heading up Asos drive to bring its
technology bang up to date. From the outside, it is easy to assume that the etailers
technology has always been cutting edge its phenomenal growth has, after all,
relied directly on the technology driving its site. But it is this fast growth, combined
with the relentless pace of change in retail and the speed at which the fashion
behemoth is scaling up in size, that means even Asos systems need some attention.

We all work very closely together and are very focused on the timely
nature of the business.
Pete Marsden, Asos chief information officer

Marsden, who joined the business in September 2012, says: We had to change
quite a lot. The main problem with Asos technology was that a lot of it was self-built

in the early days. When they built these systems they didnt expect Asos would be a
global player that needs to operate with Far Eastern languages and at the scale we
now operate. They didnt have the level of sophistication needed and we have had to
rebuild a lot of the front end systems.
Asos investment schedule is a formidable one. It has already refreshed its front end
systems, rolling out a new content management system which allows the marketing
and editorial teams to update pages and content daily. The system also allows
different content to be uploaded for different markets.
Marsden adds Asos is now working on the security aspects of the website. Were
rebuilding core parts of the platform such as the checkout and the basket, to make
sure we can keep up with growth. That part of the system has to be really high
performance. Customers want to press a button that says buy at that point, we
have to check the stock, check the delivery option and make sure the delivery
partner can do it, take the payment and validate it all in that one second. You have to
build that part of the system really well.
Plus, the company will soon allow shoppers to purchase without registering on the
site, as well as allowing them to sign in to the site via Twitter or Facebook. We are
looking at all aspects of traffic how user journeys are managed and how easy it is
for customers to navigate.
A large amount of work is going on with back-end systems as well. For a start, Asos
is building a new data warehouse to help it deal with the volumes of data it gets. We
get petabytes of data. We use Hadoop database technology and we send reports to
the marketing team we give them all the data they could want. Weve got data
scientists who analyse it all, and we use that to shift the look and feel of the website.
As at Amazon, where use of data is credited for a large part of its success, Asos
prioritises its use of data. Marsden who used to work at Orange UK and the Royal
Bank of Scotland says: The level of detail we go into in understanding data is just
as high as it was in telecoms. We have a detailed understanding of each customer
and the profitability of each customer. We learn what sells well in what place its
really important for us to understand whats trending and getting the right product to
market.
He says his key priority is to build speed and flexibility into Asos systems, so they
can cope and evolve as the business continues to grow and change. Fashion moves
at such a great rate, its a real challenge. Its really important for us to try and design
for speed. Speed doesnt happen on its own we have to constantly think about how
we are building systems so theyre easy to change. That takes a lot of effort. We
build in a modular fashion.
This means Asos is boosting its use of cloud technologies, especially when it comes
to international operations. We are very conscious that having a UK data centre is a
very long way from Australia. The cloud improves speed and helps with flexibility
we dont have to keep buying new equipment.
Asos has historically built a lot of its own system, and depending on the area of the
business, this is still the case. The closer to our customers the system is, the more

likely we are to build our own systems. Apps and mobile sites, for instance, we built
ourselves warehouse management systems, we are not specialised in.
A lot of the work going on at the etailer is internationally focused. The company is
launching apps for Australia and the US, and will do the same for France and
Germany later in the year. Marsden says getting everything right for different types of
consumers is a delicate balancing act the content, the language, payment options
and delivery options all change in each market. He says: The look and feel might be
similar but in Russia, for instance, they want to have cash on delivery because it
takes so long to get to them the last thing they want to do is pay on credit card
before the goods arrive.
In the Far East and China, meanwhile, the look and feel of the site and apps is very
different. They want five times as many images, they want more detail, the level of
information they ask for is much higher. Theyre also even keener on social media
than we are. They look for recommendations from other customers and peer
reviews.
While all this is going on, Asos continues to push the envelope on home turf, coming
up with new innovations in areas from delivery to content. It is planning to roll out a
pick up drop off service in France and England allowing shoppers to collect parcels
from a network of independent retailers, and it is trialling a loyalty scheme in the UK.
While Marsden insists its not rocket science, coming up with a technology strategy
that supports a growth plan like Asos is a big task. His team is around 400 strong,
and split into three. One section works closely with marketing, another focuses on
core ecommerce systems such as the warehouse and buying and merchandising,
and the third section is the data team.
Marsden says: We all work very closely together and are very focused on the timely
nature of the business. We all understand the performance of the site and whats
selling every day. And by all appearances, Asoss technology team is more than
equal to the task in front of it.