Unlocking Asos's Potential: Navigating Beyond Promotional Marketing Slump

Despite claiming to have made progress in addressing ongoing issues that have negatively impacted its performance, Asos has announced a 15% decline in sales for the three-month period ending on September 3rd. CEO José Antonio Ramos Calamonte asserts that the company has managed to reduce its inventory as part of a strategic initiative to shift its focus away from high-cost customers.

Inventory has decreased by approximately 30% compared to the previous year, while order profitability has increased by more than 35%. These positive results are attributed to taking specific measures to manage our least profitable customers.

Asos has expressed its aim to optimize marketing expenses in order to encourage higher customer spending and capitalize on opportunities to secure a larger portion of customers' spending. To achieve this, the company has committed to reducing promotion-focused marketing. This entails minimizing marketing contact and implementing restrictions on "buy now, pay later" options during checkout. As a result, Asos states that its return rate has been positively impacted.

Adjusted gross margin increased by approximately 150 basis points in the second half, which was slightly below the previous guidance of 200 basis points. The increase was primarily due to higher costs. However, this was partially offset by a strategic investment in promotional activity aimed at reducing stock in a difficult trading environment, according to the company.

In addition, Asos has introduced personalized marketing in order to enhance the profitability of its customer base, particularly focusing on those it considers to be of higher value.

The company acknowledged in its May half-year results that a decrease in promotion-based marketing and an 8% decline in overall marketing expenditure would have a negative effect on sales and customer figures. The company's recent results confirm this, as active customer numbers are currently at 23.3 million, a decrease of approximately 9% compared to the previous year.

However, despite this decline, the company has still relied on promotional marketing in the short term. The company mentioned that it had strategically invested in promotional activities to prioritize reducing stock levels in a challenging trading environment.

Our new commercial model significantly enhances our profitability by reducing the need for discounting, while also offering the potential for increased basket value and customer lifetime value once fully implemented.

The positive results of our Test & React trials, specifically with our own label clothing line, demonstrate the success of this model. Within a short period of time, we have achieved sales of approximately 60% for each product launch in just seven days, across a range of around 500 options produced to date. It is noteworthy that these impressive sales figures were achieved without any promotional investment, effectively offsetting the higher cost of goods created under this model.

Asos, like other clothing retailers, is tackling the challenge of reducing its returns rate. To address this, Asos has implemented charges for returns that are made after 14 days but still within the 28-day returns window in some of its "non-core markets" to alleviate the issue.

Due to a 15% decline in sales during the most recent quarter, Asos anticipates its earnings before interest and tax to be towards the lower end of the projected range (£40-£60m) for the full year. Regardless, Calamonte asserts that the company is establishing the necessary foundations for sustainable profit and cash generation.