Disclaimer: This interview is for informational purposes only and should not be relied upon as a basis for investment decisions. In Practise is an independent publisher and all opinions expressed by guests are solely their own opinions and do not reflect the opinion of In Practise.

{audio:0:02:29} As a bit of background, I am a Portfolio Manager at a Fund in London and I’m in the process of trying to learn as much as I can about UK-listed ecommerce businesses. I’m trying to talk to people who have worked at as many as I can. It is an area that sentiment has really turned against and we are looking at where there might be interesting opportunities so this is a fact-finding interview more than anything else. One of the companies that stands out in that list of London listed ecommerce businesses is ASOS.  

{audio:0:03:21} It’s quite amazing how their fortunes have changed so swiftly. It used to be the ‘darling’ of the listing but now the share price is incredible, in a bad way.

{audio:0:03:42} Yes, that’s true and it’s happened incredibly swiftly as well. I think that amongst that rubble, there might be some opportunity but I guess we’ll find that out. I know that in your role at Ann Summers, you still come into contact with ASOS quite a lot; are they one of your bigger channels?

{audio:0:04:15} They are my biggest third-party partner and they are absolutely killing my third-party business at the moment. They are not taking any deliveries. I think we released some last week. I think part of their problem is that they phased all of our stock back. We do pre-orders with them; they book stock with us and we book that with our supplier. It comes in at the same time as my stock comes in for my own channels. What we are finding with ASOS is that they have phased all the stock back so they are not taking it in. When I was there, one of the things I was adamant about is that I needed stock so that when the third-party brand went live with it, I was live with it as well. I want to be first to market. Now, they are at least three months behind me. I have stockpiles now that they won’t even take in from me for another three months. They’ve even phased some stock until next season.

{audio:0:05:25} Do you think that is because they are just so over-stocked in every category?

{audio:0:05:31} I don’t know if you saw the news yesterday; the new CEO did a bit of a ‘kitchen sink’ update. One of the elements of that was a big provision on the stock and he did actually talk a lot, using men’s underwear as an example, saying that they had too many SKUs in the category and they were going to simplify it. Do you think that’s right?

{audio:0:06:06} I think so. I think another reason they have lost their way, is that I don’t think they cull brands. When I was there, I used to review the brands every season, see how much profit we made from them – because they could be really variable – and we need to churn them; get rid of some and bring on new ones. I think they have stopped doing that, they just bring on news ones.

{audio:0:06:32} I don’t think they have got a great edit. The reason for ASOS was ‘the best edit, the best brands’ and I think they are mass market; they are very mainstream. I don’t think they appeal to that Gen Z customer anymore. I have two teenagers; they do not shop on ASOS because it’s not cool.

{audio:0:06:53} My daughter loves Depop and she likes vintage, but she also likes Urban Outfitters, JD, some obscure little ecommerce brands she buys on. She used to buy Shein but doesn’t anymore because she realizes that they are really bad for the environment. It’s cheap but there is a reason it’s cheap.

{audio:0:07:30} What about PLT and things like that?

{audio:0:07:33} She’s never really been into them, or the Boohoo group. My son likes quite urban brands so he shops with more obscure and specific brands like Trapstar and similar. He tends to go to specific branded sites, but they don’t shop on ASOS. It’s not cool.

{audio:0:07:54} I do know what you mean about the edit. In the results, yesterday, they talked a lot about that curation piece being their competitive advantage. The way he talked about it, I don’t think he really knew what he was saying. He was using words that I think he thought he should be using but it didn’t actually seem to be central to what he was thinking, he didn’t believe what he was saying.  

{audio:0:08:26} I think there are far too many SKUs. I did try to find my son a black formal shirt and I put that in and got all the options up, most of which didn’t have his size because they had sold out. I think, again, they are really wide but they don’t have any depth behind the important items. It’s just a website full of stuff. 

{audio:0:08:51} Why do you think that has happened? Do you think that is a result of sizing up of the business during the pandemic or does it go back before that?

{audio:0:09:06} I think it goes back before that. I think they have lost some of their guiding principles. When I joined ASOS, we used to turn the stock on 15 weeks cover. By the time I left, we were turning it on eight and I know they are back up to 15. I just think they have poor discipline. It strikes me as not really knowing what their priorities are with regard to the product offering. I think you have buyers just buying stuff, buying really wide, which is always dangerous because when you buy really wide you just buy anything and you buy worse sellers. If you are more restricted, it makes the buyer make choices and when they make choices, they are generally going to make the right choices.  

{audio:0:09:54} Has that come from the idea of broader choice being positive, but it gets taken too far?

{audio:0:10:07} When I talk to my teams about choice, it has to be proper choice, not what I would call ‘me toos’, so buying something that does the same job as something you have already got. That’s not choice. I don’t think they have got a handle on that. 

{audio:0:10:24} Do you think that their stated intention from yesterday, of trying to put the right-sized selection and be more intentional with their buying is do-able? Can you turn a ship on something that big?

{audio:0:10:40} I think it is but they need somebody strong at the helm. The new CEO was José, the commercial guy, and I don’t think they have replaced him yet.

{audio:0:11:02} No, I don’t think so. I was going to ask you about all the changes as there has been a bit of a revolving door. I know that Mat Dunn who was the CFO, and I think was also standing in as the Chief Operating Officer, is leaving; reading between the lines it is because he didn’t get the CEO role. I don’t think they have filled that role. They have filled the CFO role; I can’t remember the lady’s name but she was an internal promotion, I think. With the founder, Nick, increasingly stepping away – I think he resigned from the board at the end of last year and has been selling stock – often people like me interpret that as a sign the business has fundamentally shifted away from its original form, the model that made it attractive originally. The impression I got from the update yesterday was that there is a bit of an admission of that now and that they are trying to go back to that by shortening testing periods, being quicker to market than they have been historically, all of which sounds to me to be a big task.

{audio:0:12:31} I read the reports yesterday and I don’t know what they have done regarding their speed to market, because it used to be part of our ethos. We would over-index on near-shore sourcings. We would buy a lot from Europe and a much lower mix of Far East buying than the traditional high street. They must have changed that over a period of time, I guess, at an attempt at chasing margin; they must have gone further afield to get better margins and that’s a problem if they have done that. They do need to bring it closer to home.

{audio:0:13:11} That is the idea that the likes of Boohoo talk about, of having very proximate manufacturing capacity to test products before you then order bigger runs of it from bigger capacity manufacturers. That seems to me to be essential to a fast fashion business. That element of the manufacturing was the center of the sustainability crisis over the last year or two. I don’t know whether it is as a result of moving away from those types of factories that were at the center of that?

{audio:0:14:11} Was José was there when you were there?

{audio:0:14:18} No, he replaced me, although much later. I used to do the commercial role so I looked after buying and merchandising etc. I had met him socially, very briefly. I did ask Nick Beighton if José was up to the job and he said, no.

{audio:0:15:02} Do you think they are getting things in too late; it’s not late delivery?

{audio:0:15:05} It’s not late delivery, they have delayed the stock. I think it’s just poor inventory management and I think it has been building. Today, they have 20% off everything again and they do that repeatedly. You can pretty much guarantee they will have that on every week so why anybody would buy at full price on ASOS is beyond me. Just wait a few days and they’ll have a 20% off. I don’t think that is helping their inventory control because when you do 20% off everything, people go and buy the best sellers and get 20% off it. What they don’t buy is the crap that you need to get rid of. So I think they need to be more targeted in their offers and try to shift the stuff that is not selling and perhaps go deeper so that they clear it, and doing that in season, not waiting until they get to the end of the season and doing it in their sale. 

{audio:0:15:59} I’m assuming that they do 20% off everything because they are trying to attract customers or drive conversion, as opposed to an inventory control mechanism, but they are doing it too often.

{audio:0:16:18} Again, that is something that they touched on yesterday in their Q&A, about being more targeted with their promotions which makes it especially ironic that today they have got 20% off everything.

{audio:0:16:30} I thought that this morning because I’m on their mailing group. I thought, you only said yesterday that you were going to do less discounting and the day after you’ve got 20% off again.

{audio:0:16:42} In terms of marketing, they talked about having relied too much on performance marketing and not doing enough brand awareness.

{audio:0:17:09} As a pedestrian, you do pick up on brand marketing more than other types and ASOS has really lagged behind. How much of the pull from consumer to ASOS is ASOS, and how much of it is the brands they carry on the platform? For example, if you have someone converting through ASOS, on an Ann Summers purchase, do you have a sense of the people who went there looking for underwear and ended up on Ann Summers or were they looking for Ann Summers and found their way to ASOS to buy it?

{audio:0:17:47} I think they are looking for underwear and found Ann Summers. We transact with ASOS on a wholesale basis so they, basically, buy the stock for us and they take ownership for it. I have a couple of other businesses where I drop-ship. I do drop-ship with the Very Group; that is the equivalent of their ‘partner fulfilled’. Because we are fulfilling it, we have the customer data. On the Very Group, we have done an analysis between my customer database and the customers that are coming from the Very Group and there is literally a very tiny crossover.  I imagine it is similar but, with ASOS, it is a different customer that is going to them. I think the pull of ASOS is the fact that it’s multi-brand. I think that’s a really great advantage for ASOS versus Boohoo because with Boohoo you know what you’re going to get, whereas with ASOS there is a bit more discovery. They should be using that to their advantage but it goes back to them needing to ensure the brands that they have are relevant to their consumer and they are doing the best edit of it, not just a scattergun approach. I do think the third parties are a good pull.

{audio:0:19:18} They do still retain that brand equity in the ASOS brand itself but it does seem vulnerable; customers will only put up with so much poor editing.

{audio:0:19:42} There is a lot of blame for decreased demand being placed on inflationary pressure and poor consumer sentiment. There is a real mix; everyone agrees that it was really bad in April/May and some have had some recovery into September, some haven’t. What do you think?

{audio:0:20:06} We’re actually okay. We saw a bit of a slow down over the summer but we’re actually performing pretty well; last week I was 10% up on the year and I had a good year last year. I think that consumer sentiment is slowing things down but I think the brands that get it right will just take share. Certainly, I’m saying to my guys that this isn’t a growing market. We’ve got to pinch shares from everybody else so all we’ve got to do is do it better than everybody else.

{audio:0:20:45} Are you doing that through price or by being better value at price point?

{audio:0:20:53} Better product, basically. We’ve virtually put our prices up; we had to because of the inflationary costs we are seeing. We haven’t put them up across the board, we’ve been quite selective, so I haven’t put my entry prices up because that is a value customer and I don’t want value proposition to be eroded in this environment but I have increased prices on our customers of less price sensitive stuff. I think brands have got to be quite clever about that.

{audio:0:21:23} Do you think the trend is starting to improve or is it variable, week on week?

{audio:0:21:34} What we are really finding – and I would imagine that ASOS are really finding this as well because we have a similar target market – is that pay day is really polarized. Sales are very polarized towards when people are getting paid and much more muted mid-month when people don’t have any money. When they get paid, it goes off like a rocket.

{audio:0:21:58} Is that more so than it has been over the last couple of years?

{audio:0:22:03} Yes, I’m seeing it more and more; pay days are more and more important. Even in the week, I’m seeing that Saturdays are more important again, and return to physical stores might be hurting ASOS actually. Saturdays are always the biggest day because I’ve got 90 stores and they take 50% of my revenue, but what I am seeing is Saturdays getting stronger so I do wonder whether this return to the high street is hurting the e-companies.

{audio:0:22:46} I think that a number of the listed bricks and mortar retailers that have reported recently have started to point to that trend but everyone is a bit nervous to actually say it out loud. The fact that pay days are now becoming more of a thing is scary in some ways, if you extrapolate that out and what it might mean, especially when coupled with credit card data starting to show strain too.

{audio:0:23:24} You can’t learn about ecommerce without learning about returns. In some respects, I think the whole thing really hangs on how returns behavior has developed over the last period. Broadly, what do you think about the returns behavior pre-pandemic, going into the pandemic and coming out of it? Have people just got really comfortable with the idea of parcels and going to the Post Office and returning things? The tech has improved and you can return things much more easily now. Any thoughts on that?

{audio:0:24:31} I do think consumers are really comfortable with them. It’s dead easy, particularly with lockers now as you don’t need to go to a Post Office, you can just go and drop it in a locker. I’m not surprised that returns have gone back up because the product mixes have changed. Certain products attract a higher return rate and they tend to be going out/formal wear. The higher the price of an item, the higher the returns rate because consumer expectation is obviously greater the more you are paying for something. Nobody was buying dresses during the pandemic. Dresses are fit-critical so consumers will generally order more than one; they might order more than one size, more than one style. I think the home has become the changing room. People are ordering, trying on and making a selection at home. If you are going to an event – for example a wedding – you don’t just want to try on one dress, you want to try a few, so I think the whole change in category mix since the pandemic will have impacted returns rates going up.

{audio:0:25:57} So you think that maybe there is a bit of comfort with it but also the mix has snapped back past where it was pre-pandemic as things open up again. People hadn’t bought dresses for maybe 18 months so they’ve bought more dresses than they were buying before the pandemic?

{audio:0:26:19} Also there is the fact that nobody got married for 18 months. There have been a lot of social occasions. I was looking at some BRC, British Retail Consulting, data recently and it was interesting to see that clothing has actually performed pretty well from June to September. Clothing has fared pretty well across all retailers and that is down to the fact that we hadn’t bought any clothes for ages, whereas home categories are struggling now because people bought things for their homes during the pandemic. It’s interesting because clothing is normally one of the categories that suffers but it has held up well in recent months.

{audio:0:27:15} There are two elements to the returns; there is the choice element which you are going to struggle to address because even with VR tech I don’t think you are ever going to fix the choice thing. You have to either disincentivize returns which is becoming more and more popular using charging – Zara and Boohoo now charge – and you basically put friction in the process. I’m interested in your thoughts on that? The other part of it is the fit-critical aspect and that strikes me as something where you could maybe make a bit more progress. With sizing, generally, I think there is a lot of improvement to be made there.

{audio:0:28:11} There is various plug-in technology now available to help the customer buy the right size. They are not seamless. I’ve got one on my site called ‘Truefit’; it’s helped a little bit but I think that it’s one of those things where the more data you get in there the better the algorithm.

{audio:0:28:34} No, you put in the current bra size and brand and describe the fit, and it will make a recommendation based on that. The problem that ASOS have is that multiple brands all size differently, so a size 10 in one brand could be a different fit to a size 10 in another. I think that makes it quite hard for them to recommend the right size when there are so many variables.

{audio:0:29:06} My understanding is that you have to get down to the pattern or the fit model for each of the brands and then the brands categories, and obviously they manufacture things in different places. It’s really complicated to actually get to the end-game of somebody either taking a picture or scan and the platform shows them things that would fit them, which I think would be a huge improvement. There are so many things that need to speak to each other that just can’t at the moment so it doesn’t seem like a near-term solution. What do you think about charging?

{audio:0:29:52} It does disincentivize but I also think it could be a blocker to the gross sales. I don’t like paying for delivery; I certainly don’t like paying for a return. I think it could be a blocker to sales. Zara are quite clever; they charge for a return if you do it by post but it’s free to do in-store. I think that’s quite clever because then you’ve got a chance to convert them again once they are in-store.

{audio:0:30:31} It’s really clever and it’s another one of those areas where the bricks and clicks retailers have gone from being disadvantaged in people’s minds 24 months ago to really having an advantage. I really quite admire what Simon Wolfson has done at Next, they have really managed to use their store as status; they’ve rationalized it and made it an asset in terms of their online business, that’s impressive. I agree with you about the refunds and the disincentive. ASOS said yesterday that they have no plans to start charging but I know Boohoo have and, so far, they are saying they haven’t really noticed any negative impact; it’ll be interesting to see how that plays out. I imagine if there is genuinely no impact then everyone will start charging for returns.

{audio:0:31:26} It’s one of the things we’ve talked about and I’ve said, let’s just watch what happens with everybody else because it’s still free returns for us.

{audio:0:31:42} In terms of margins more broadly, what direction you think things might go, both in terms of gross margins and on the fulfilment side? At Ann Summers, are things improving? Are you managing to get things from manufacturers to you for cheaper than you were in the last few months?

{audio:0:32:12} No, the cost of goods is going up and that’s why I am having to raise my prices. Just the cost of raw materials and cost of manufacturing takes energy and we all know what’s happened to the energy prices. The one thing where we are seeing a bit of deflation is freight costs. Obviously, in the pandemic, there was a lack of containers, a lack of vessels and the containers were all in the wrong part of the world and so freight prices went up by something like six times. That is starting to come back a bit because of the slow down and the demand isn’t there.  That’s the only thing, everything else is up.

{audio:0:33:00} Is it mostly shipping freight, or do you use any air freight?

{audio:0:33:05} I try not to because it’s really expensive and also, from a carbon footprint point of view, it’s terrible so we try to do everything by sea freight.

{audio:0:33:31} Are there any advantages you can elaborate on for having the Boohoo model of the more vertically-integrated first-party platform?

{audio:0:34:11} The margin is the obvious one as you make a much greater margin on first-party as opposed to third-party. There is about 10% difference on the intake margin between third-party and first-party. There would be about 65% on end-buy, that’s intake margin, and 55% on brands. The idea is that you want to over-index on your first-party brand so that is obviously an advantage for Boohoo; they have bigger margins to play with to start with.

{audio:0:34:56} What do you think of them, generally?

{audio:0:34:59} I don’t like the Boohoo Group. They’re smart, they’ve got a great model but, ethically, I don’t think they are very transparent. They have been called out on their supply chain. I know they are trying to make it better but I just don’t think they are very transparent.

{audio:0:35:36} Do you think that some of the very visible efforts that have been made to address that might be just for show?

{audio:0:35:49} It strikes me that the model and use of those facilities and factories was such an important part of their process and so is more difficult to change than it has appeared to have been.

{audio:0:36:09} I think it is and I just don’t know how they can put some of those garments out for those prices if they are using an ethical supply chain, they just can’t.

{audio:0:36:18} Going back to Shein, is that a ticking time bomb? 

{audio:0:36:38} I saw something recently about paying their workers three pence per garment they make. I think that will come to the fore and they will get caught out like Boohoo did. The difference is, they are in China whereas Boohoo is in Leicester, so it’s a lot closer to home and therefore becomes more visible. Possibly being in China, they go under the radar a little bit more.

{audio:0:37:07} They are growing in terms their market share. I think there will be some form of regulatory push-back against it but it might have to come at a national level. They are treated as an off-shore company in China so they get some tax exemptions for that which mean they can then pass the price discounts on. It strikes me that it’s incredibly difficult to compete against them on price; you’re not going to be able to do it because you’re going to be held to different standards.

{audio:0:37:46} There is such a push on sustainability and, certainly, I’m doing a lot on sustainability because I think it has become an expectation of the consumer and I think it will gather pace. I still think the younger customer is still very price-focused. I think that will change in the future but I’m not sure how quickly. It’s not a great outlook for fast fashion businesses.

{audio:0:38:16} It’s very difficult to make the sustainability argument when you are dealing with a price competitive consumer who is price-led. Do ASOS ideally want to push as many people as possible onto first-party brands? Do they want the third-party there just for volume and to bring people to the site? Do people feel vulnerable as a third-party brand on ASOS or do they feel valued?

{audio:0:39:06} I didn’t feel vulnerable, but now my business is a fraction of what it was this time last year. ASOS used to operate broadly 50/50 between first-party and third-party and, of course, we wanted to sell more first-party products but we never dictated that; we went with where consumer demand took us. I think having Top Shop and Top Man will help them. They are obviously first-party now so they really need to leverage that. I think they need to make sure there is a clear difference between what Top Shop and Top Man are and what the ASOS own brand is because, potentially, they are quite close. They need to really determine what makes them different.

{audio:0:40:04} I know that you sell through other platforms; how does ASOS compare to, say, Next, from a third-party brand perspective? I know they are a bigger channel but are there any other differences?

{audio:0:40:30} I think the partner fulfilled bit for ASOS is way behind the curve. Very Group, Next, Zalando have all been doing it for a long time – less so the Very group who are new at it – and for the size of ASOS, and the amount of inventory they have to carry, I can’t believe they’ve only just started to do this. I’m really keen to do this, I’d sell more. When the buyers have to purchase the stock, they are limited by budget, whereas on partner fulfilled, I can open up my whole catalogue and I have better availability, so I sell more.

{audio:0:41:23} It’s only Adidas and Nike at the moment; I don’t think they’ve opened it up broader than that. Would that be more profitable for you, would you get more margin?

{audio:0:41:39} Yes, I’d make about 10% higher margin on it than I do wholesale.

{audio:0:41:48} It’s difficult for ASOS as it’s a balance between having a broader range by allowing partner-fulfilled but not only are you capturing less to the value, but you are also less valuable in that value chain because you are then just a display advert.

{audio:0:42:11} Some of the brands, such as Next, want sign-off on what products you are going to put on their platform so you can still control that, it doesn’t have to be everything. I think, from a working capital point of view, not having to have all your cash tied up in inventory is better, and the mark-down is not your problem because it’s not your stock. Currently, I buy stock to put on the third-party channels and if I don’t sell it then I have the stock issue; that goes away.

{audio:0:42:51} They mentioned this idea of ASOS fulfilled which I didn’t really follow but I think it is similar to how Amazon offer a check-out facility. They do the logistics from your site, so if somebody buys direct through Ann Summers, it can be fulfilled by ASOS from their warehouse but the stock sits on your balance sheet not theirs although it’s held in their warehouse.

{audio:0:43:26} Amazon do a hybrid model; there is ‘fulfilled by Amazon’ and ‘fulfilled by merchant’. ‘Fulfilled by merchant’ means it’s in my warehouse and I fulfill the order. ‘Fulfilled by Amazon’ means I own the stock but it sits in their warehouse and they fulfill it. I make a much lower margin on that but it does have the advantages in that the product then features in Prime so customers can get next day delivery which I can’t do that in ‘fulfilled by merchant’. It makes sense. With Next, I’m on consignment, so my stock is sat in their warehouse.

{audio:0:44:06} But on your balance sheet?

ASOS Marketplace: Third-Party Brand Perspective

Former Trading Director at ASOS & Current Ann Summers Director

inpractise.com/articles/asos-marketplace-third-party-brand-perspective

Executive Bio

Former Trading Director at ASOS & Current Ann Summers Director

Interview Transcript

Yes, that’s true and it’s happened incredibly swiftly as well. I think that amongst that rubble, there might be some opportunity but I guess we’ll find that out. I know that in your role at Ann Summers, you still come into contact with ASOS quite a lot; are they one of your bigger channels?

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Audio

ASOS Marketplace: Third-Party Brand Perspective(November 4, 2022)

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