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:0:02:26} As you know, we are an investment fund looking more into the fashion industry and ASOS as a story, and wanted to see what your views were. Could you please introduce yourself so we can better understand your know-how and how things fit together?

{audio:0:04:17} I have spent 25 years working in the fashion industry, being involved with everything from luxury fashion to very fast fashion and I worked for a several UK brands. Separately, I have lived in Madrid, Berlin and the Middle East, so I am pretty well-versed in terms of the fashion industry from an international perspective. Aside from what I have achieved in my corporate career, last year I became a consultant working with fashion brands rather than for a company. I also have a fashion platform which is based around sustainability and the growing need for a more circular economy. That is a new project I am trying to get off of the ground.

{audio:0:05:30} What is the core competency and USP of ASOS in the marketplace?

{audio:0:05:48} ASOS has evolved over the past 20 odd years that it has existed. It has niched down in terms of who their customer is. 10 years ago, they were trying to do all brands, but have now niched down to the Gen Z and partly the Millennial market and have taken a big corner of that market. The pricing has been defined and they know who their customer is. Over the past five years it has changed substantially.

{audio:0:06:49} From my view, all those brands look the same, but just to get a better idea, what are the most important niches or where are the things developing if you go one level deeper into brand logic and categorization?

{audio:0:07:12} ASOS has a vision to be at the forefront of fashion, to be first at everything. From a fast fashion perspective, they are always on it in terms of trends but far cheaper than many other brands, but for them it is about being first to market rather than the price point. Even though it might be fast fashion, it is not necessarily the cheapest. They are niched into that, definitely with the brands which have evolved through ASOS because they have a slightly higher price point but also have the mainstream brands. They have become complementary with the brands they work with, in terms of what they are offering.

{audio:0:08:13} In terms of lower and higher price points, can they evolve their position to capture audiences above their 20s and follow them through their fashion life cycle?

{audio:0:08:40} Yes, I think they can. They have recognized they cannot keep customers forever. I am now in my 40s and was an ASOS customer over 10 years ago, but am no longer. I have grown up and moved onto brands which are no longer sold on ASOS. They did keep me on hook because of brands like ASOS Design, which was a higher price point but was also quality. It was never about the fashionability but more about staple pieces based around tailoring. It was more about the long-term investment pieces they niched into very well.

{audio:0:09:32} You mentioned they wanted to be first, and I know they have an extensive design team in-house; does that mean they differ to Zara who work for other brands or luxury brands that are innovating? Do they also take design risks or are they taking designs from the luxury players and bringing them to the cheaper mass market?

{audio:0:10:08} It is definitely a combination. Based on my experience with ASOS, I worked for a particular fast fashion brand who bought the product as a brand but we also provided them with exclusive pieces. They were first to market with those exclusives in terms of what worked well for that particular brand. For example, if it was a dress, we may repeat it in an exclusive style specifically for ASOS, with a longer or shorter sleeve and three inches longer or shorter.

{audio:0:11:00} They had a separate team for their private label business, which looked at trends happening on the catwalks and the fashion scene. They also looked at products from a data perspective in terms of what sold well on the ASOS website. They tried to get as much margin as possible with their own private label brands. For example, if red dresses did particularly well, they would do a range of red dresses.

{audio:0:11:51} How does that work because players like SHEIN put new designs out rapidly and if something sticks, they produce more. It seems that lead times are fast for them, but delivery times may take slightly longer because they ship from China. I understand that ASOS have a lead time of seven weeks, is that still the case and do you see that as an advantage or disadvantage in terms of, is that state of the art?

{audio:0:12:43} With ASOS the average is seven weeks but some brands deliver within two weeks.

{audio:0:13:00} Many UK suppliers and brands deliver quickly. In terms of the example you gave in regards to SHEIN or She In as it's known, their concept is about testing the trends from the catwalks to see what works. They are a very data driven company and look at who is shopping, specifically targeting the Gen Z generation. They are not interested in quality; the price point is what drives the number of sales. In addition to copying from the catwalk, they copy products from Zara and use prints which are very similar to products in high street brands. They are not bothered about which brands they copy, because they will do anything. If they can get something that looks similar to other products and they think that they can sell it, they will.

{audio:0:14:40} When you think about price versus brand, this leads to the lower price segment where brand is not an important driver; is that a fair assessment?

{audio:0:15:01} You are absolutely correct.

{audio:0:15:03} ASOS are acquiring brands which are complementary in this lower price bracket; what is your view on that strategy?

{audio:0:15:19} Are you alluding to their purchase of Top Shop earlier this year?

{audio:0:15:29} That was a strategic move because it was a well-respected UK high street brand. It was also a brand which, sadly, had its demise over the past few years. The epitome and essence of what Top Shop was about was definitely the ASOS customer. Many products which were available in Top Shop were also in ASOS, so I think it was a great thing for ASOS. Separately, the fact that it was not bought by Boohoo is its saving grace. It is in the best hands because ASOS know exactly what that customer wants.

{audio:0:17:00} Certain customers still care about the brand, was the design speech from Top Shop different from ASOS?

{audio:0:17:20} It gave credibility in terms of the supplier base. Top Shop had high volumes with an impressive list of suppliers. ASOS bought that and now has access to those suppliers, which was very strategic because they were unable to get that exact quality from other suppliers. Separately, the customers went hand in hand. Over the years they probably would have acquired that Top Shop customer because the brand went downhill for quite some time.

{audio:0:18:42} How developed is this supplier footprint in terms of regionality or quality? How would you rank their suppliers, including those from Top Shop?

{audio:0:19:04} They have an extensive base of over 800 suppliers. From an international point of view, they are everywhere. They were based in the UK but production went across Europe into the Far East and some of it was even in South America.

{audio:0:19:58} Are they above or below average in size compared to their UK competitors such as Boohoo who are operating in the same price range?

{audio:0:20:24} Boohoo is off the charts with its growth over the past three or four years, both with their acquisition of brands and growth in sales, especially during the pandemic. The ASOS customer is loyal and understands quality whereas at Boohoo they will get a €5 dress.

{audio:0:21:03} Are they somewhere between SHEIN and ASOS?

{audio:0:21:08} SHEIN and Boohoo are probably on the same level.

{audio:0:21:20} Does Boohoo mostly produce in China as SHEIN do?

{audio:0:21:31} No, Boohoo have production in the UK, Europe and the Far East. They recently published their full supply base, so that from a sustainability point of view you can check who they work with, and it is fairly extensive.

{audio:0:22:03} Are they able to undercut prices by taking lower quality garments and using cheaper workshops to manufacture their products?

{audio:0:22:17} Boohoo have suppliers that work with quality fabrics. There is a battle with them wanting to become more sustainable, which is around the ethics of paying, and some of their price points have had to increase as a result of that. Saying that, the quality of the products has not changed much. SHEIN have 100% Chinese production.

{audio:0:23:09} In the beginning of October, SHEIN in Germany doubled their prices. Have you heard anything about that because customers went mad?

{audio:0:23:23} Is that due to shipping costs or the euro price?

{audio:0:23:28} The product cost; it could be shipping rates or outages in Chinese factories.

{audio:0:23:42} My top line thought is that it could either be due to shipping or demand. They are seeing a huge influx of German consumers buying their product which means they become slightly greedy and increase their prices.

{audio:0:24:17} Are these two their main competitors in the lower price points? Who else are going towards the ASOS market?

{audio:0:24:35} I do not think consumers go on ASOS for the basics. If they are looking for a plain black or white t-shirt for example, they might go to Primark or Boohoo because it is cheap. They may also go to H&M because it is there and they know that they can pick it up for €5. With ASOS, I think consumers are looking for fashionability and something slightly different.

{audio:0:25:32} One initiative they have started is the marketplace, similar to Zalando, who are three consulting guys that were unable to create their own brand. They did not know what worked and what did not, but they were good at operations so went for the marketplace model. ASOS is doing the same, but if they want to be first and are now also putting other brands on their platform to acquire a share of their production up front to take inventory, is this a credible strategy for ASOS in this segment?

{audio:0:26:40} I previously worked for Zalando where a big proportion of the business was marketplace and it was very successful. ASOS have not done a great job of it. Marketplace is a place for brands who do not want to buy or invest from a wholesale perspective. Many niche and startup brands are on there, testing the market. It is not a massive part of their business and certainly not something they actively promote like Zalando does. When working with Zalando you join their partner program, whereas ASOS have not taken the same approach.

{audio:0:28:01} If they follow that strategy their logistics need to be scalable and up to date, otherwise investing into acquiring new customers makes no sense. How do their logistics and warehouses compare with those outside of fashion, such as Ocado who deliver groceries? I see ASOS warehouses have many people walking around. Are they state of the art or have they under invested in their logistics footprint to be able to scale?

{audio:0:29:07} Zalando do automation really well and have cities which have become automated warehouses. ASOS have automation in their warehousing, but they have been slow to scale. They have one UK warehouse and one in Germany. They were looking for one in the US for some time and finally have that up and running. Zalando are well-equipped to deliver to the 22 countries they currently serve and they do an amazing job and get it there very quickly. ASOS deliver to over 100 countries fairly quickly, but in terms of automation and growth they have been very slow.

{audio:0:30:29} Besides the fashion part, like Zalando, they are going into beauty products and attaching new categories. Is this a viable strategy and are people buying fashion with beauty products? In the US you have Ultra Beauty and Sephora but this is unique in Europe so it is not an empty market and now these companies are getting the idea?

{audio:0:31:24} Face and body is not new to ASOS; it has been on their website for 10 years. Because ASOS try to be gender neutral, they call it face and body instead of beauty, which is very commendable because everyone is beautiful, but I like that their approach is neutral. It is great if a consumer can buy their clothes, face cream and mascara in one shop. Beauty, hair products and clothing are complementary and, if anything, they need to grow it.

{audio:0:32:30} Do you see other verticals besides beauty that could be added?

{audio:0:32:44} They do footwear, accessories and face and body. Their brands will naturally start going into home, which opens up another can of worms, but they have got their niche sorted. They could do a much better job with accessories to be honest; they are not the best.

{audio:0:33:31} Going back to production and sourcing, you mentioned they are data driven but how do they decide which designs and how many of each are produced? Is this data driven or are there interactions with people that could be more automated?

{audio:0:34:09} I cannot give a viewpoint because I am too far removed, but it is like any business. You have your budget and how much is available to buy for the month, so there is a process behind it, but the products are driven in terms of what products brands have got coming in. They also know what open supply they have and ensure products are dropped when needed. There is a complex process behind their choices and most of it is done manually.

{audio:0:35:00} There is an automation process for it, but the teams know when product will be dropped versus which styles are currently trending because they constantly watch that. Most of it comes down to budget, how much they currently have available to buy the products.

{audio:0:35:31} Do they have a broader range with lower volume per design compared to Boohoo, H&M or C&A? Is ASOS more individuality driven compared to the others?

{audio:0:36:08} Low MOQs do not work because ASOS have to consider warehousing costs to get that product. They do look at products where they can drive the most volume. They order 300 to 500 of a unit, because getting a product online involves much more than a photograph. The product needs to be designed and delivered and whether they order 50 or 500 units, it takes the same amount of time. They are very strategic in terms of the volumes and low MOQs. They will have low MOQs when testing in the UK versus internationally.

{audio:0:37:29} Would you describe ASOS as an IT driven company?

{audio:0:37:41} They are definitely a data driven company. It is an ecommerce platform for fashion but their product choices are driven by data.

{audio:0:38:15} Which tools are used to identify trends?

{audio:0:38:39} Funnily enough, I used to work with a brand who worked very closely with ASOS. This particular brand would do a monthly drop and within a week after delivering that stock, we would have the data for that particular collection we had dropped. We would then have a weekly meeting with ASOS to look at the best sellers. We usually delivered 300 to 500 units to ASOS per style, and for some styles which did exceptionally well, there was much more. They knew very quickly if a style was going to be a good seller, so they would then repeat that style.

{audio:0:39:44} The choices around the color ways would be based on data. They would look at particular colors that were working, but also the trends which were up and coming in those styles. Let's say it was a long sleeve dress, to the knee and figure hugging. We would then look to do that short sleeve, several inches longer, and in blue, black, pink, green and red. We would make those decisions based on both the sales and the data.

{audio:0:40:29} With small batches, they produce them and if they sell exceptionally well, they buy more, until a certain point where they can no longer sell, then it ends. At that point they are stuck with some inventory. How often is this an issue for ASOS?

{audio:0:41:07} They try to test everything because they have to. They know which trends are coming in but they also test. 300 units is a good test and they know the demand very quickly, so they are constantly looking at the new in. If demand starts to tail off within a few weeks and they already placed an order, the data will quickly show them if it will work or not. If something has been put on repeat, there is a reason and it does not simply stop overnight. The style is there because it sells particularly well and it will not fall off the face of a cliff overnight. They also know when a style is no longer trendy. In that case, they might do a style in a longer sleeve or stop doing it, but they will constantly watch the data. When things stop working, they simply mark it down and it quickly goes out the door. Very rarely do they end up getting left with stock.

{audio:0:42:32} Comparing these processes with competitors, who is fastest to market and understands when the hype or trend wears off?

{audio:0:43:05} Zara are very quick to nail fashion and trends. They are able to localize market demand from a buying perspective because the store managers choose which products to buy.

{audio:0:43:45} That is commendable because the store manager knows what works locally. Products are produced with the whole view of an international market, but there are things that will not work in Italy but will work in Japan. From a UK perspective, there are certainly styles in Manchester which will not sell so well in London. Their localization is phenomenal and I know of no other company who gets it the same way, in terms of fashionability. With Zara it makes no difference whether you are 15 or 90.

{audio:0:44:48} Do designers in ASOS make decisions or is there a team who is responsible?

{audio:0:45:12} No, it is a combination of buying, design and merchandising. It is the ability to put the entire collection kit together, because they have multiple designers. They will have one for blouses and another for jerseys, so it is about making the range look cohesive.

{audio:0:45:35} Is there a clear responsibility for the designer who made the dress that sold well to produce three more, similar to store managers at Zara?

{audio:0:45:49} It is a team effort. The designer will design several dresses. The buyers obviously have responsibility for buying. The merchandiser decides to buy it or not depending on how much money they have left. It is a combination of many things, but at the end of the day, it comes down to the budget, because without budget you cannot buy anything. You can design 100 dresses, but if you cannot buy them, it makes no difference.

{audio:0:46:26} Shifting to innovation, what are the key innovations in the market? For example, you can measure your body with LiDAR and an app shows you which size or type of shoes would fit well?

{audio:0:46:59} There is so much innovation. Should I start from a manufacturing point of view?

{audio:0:47:05} List the three most significant which could change business models.

{audio:0:47:15} Fast fashion has sped up as the digitalization of showrooms has become easier. You can now see designs on a 3D model instead of a physical one, and designs can be fed into a computer so that you can see a 360-degree view. Product design is becoming AI driven with one of the biggest innovations being 3D scanning. You can transport yourself onto a catwalk or be walking down the Champs-Élysées. There is a lot of imagination going into the fashion industry to show what clothes will look like on you which changes how consumers shop. Sustainability is a huge thing and consumers have been overwhelmed with choice. Many consumers do not know how to buy, so subscription models are driven through AI and data. The industry also has blockchain and NFTs, so it is an exciting space to be in at the moment.

{audio:0:50:29} Is ASOS still on top of their game in the ecommerce space? Can they survive in this new world with the other large players?

{audio:0:51:49} ASOS have stayed in their lane for 20 years. They are a very defined ecommerce player who know who their customers are. One of their challenges is keeping the Gen Z consumer in line because of increased competition from the fast fashion market; brands which are more about the product instead of the quality, as we mentioned earlier. The space will continue to grow, and certainly the state of the UK economy, in terms of retail, is dire.

{audio:0:52:38} If ASOS do not continue to innovate their ecommerce model to make shopping easier and more exciting for customers, they will simply move to another company or brand. They are a fairly big player in the UK fashion market with a turnover of £3.3 billion.

{audio:0:53:31} With a very niche offer; they need to be more adventurous with innovation. They have been very slow at adapting. Every week I read how Zalando have invested in an innovation company and are constantly looking at new avenues, whereas that is rare at ASOS. I know there are massive costs to innovation, but I feel that ASOS do not invest that much.

{audio:0:54:40} What are three to five values which describe the culture at ASOS?

{audio:0:55:02} ASOS are very much in the Gen Z lane and their biggest sway is sustainability. They are pushing their values around being sustainable and trying to promote who they work with and how they deliver products. That may be a buzz word and a simple box ticking exercise, but they are putting in a tremendous effort to ensure the Gen Z consumer understands what they stand for because they are the ones who are questioning the status quo around sustainability.

{audio:0:56:35} The ASOS CEO recently resigned; if you were the new CEO, what are three to five things you would do in the next year?

{audio:0:57:00} He resigned after doing a phenomenal job in the time he was with the company. There was some negativity in the press with regards to him stepping down due to supply chain issues, but I think he has done a phenomenal job with that brand.

{audio:0:57:34} To try and fill his shoes would be really difficult. Whoever they decide to bring on board will have to be someone phenomenal, because what he stood for was amazing. I cannot fully answer that question because would not do it any justice.

{audio:0:58:20} Thank you, it was great to talk to you today.

{audio:0:58:27} It was my pleasure, thank you so much.

ASOS, Zalando, & EU Fast Fashion

Former Sales and Marketing Director at Zalando

inpractise.com/articles/asos-zalando-and-eu-fast-fashion

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Former Sales and Marketing Director at Zalando

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