ASOS’ ‘poorly planned’ marketing budget causes major losses

The online fashion retailer saw sales growth of only 1% in the last year and has built up £153m net debts, with the CEO now set to change the course for its marketing strategy after revealing that 80% of marketing budget was used for performance.

The cost of living crisis and tough competition in the performance marketing space have made it a difficult year for online fashion stalwart ASOS.

With high distribution costs and too much wastage, the brand is now commissioning a reshuffle of the company’s operations, beginning with its "poorly planned" marketing strategy.

ASOS is to write off over £100m of stock and cut costs as annual sales growth stood at only 1% this year, the retailer revealed in last week's annual report for the financial year to 31 August 2022.

An over-reliance on performance marketing tactics, leaving just 20% of the budget for branding, is attributed to much of the loss, and will be a marked change in the new strategy for the year ahead.

The brand has also struggled globally, with sales growth rising by 7% in the UK, 10% in the US and 2% in Europe, but shrinking 9% in all other markets.

José Antonio Ramos Calamonte, Chief Executive Officer at ASOS said: "I have set out a clear change agenda to strengthen ASOS over the next 12 months and reorient our business towards the future. This includes a number of decisive, short-term operational measures to simplify the business, alongside steps to unlock longer-term sustainable growth by improving our speed to market, reinforcing our focus on fashion, strengthening our top team and leveraging data and digital developments to better engage customers.

"On the basis of the actions I have set out today, the team and I will work resolutely to emerge from these turbulent times as a more resilient and agile business - all the time guided by our purpose, to give our customers the confidence to be whoever they want to be."

“A poorly planned marketing budget”

Justine O’Neill, Senior Director at Analytic Partners, commented on the brand’s struggle: “ASOS has been a stalwart in the fashion retail space for the last two decades, so it has been sad to see them report such major losses.

“What is important here is that the team has recognised that the results are down to a poorly planned marketing budget, with 80% allocated to performance marketing, leaving little left to brand spend.

“[Calamonte’s] 12-month turnaround plan resonates with what we’ve found in our own research, that brand activities are 80% more likely to be successful than performance messaging, and that an emphasis on brand marketing will in turn have a transferable impact on overall performance.”

ASOS said it has agreed to take out over £650m as a banking facility to give it "financial flexibility" and will be cutting costs by rearranging operations, improving management of stock and "refreshing the culture" of the business and "reinforcing the leadership team".

The retailer increased marketing spend as a percentage of total costs to 5.7% in the financial year, up from 5.1% the previous year.

"Wastage all too common in the fashion industry"

“What we’re seeing with ASOS emphasises the need for fashion businesses to truly get to grips with inventory management in order to minimise wastage,” added James Hyde, Chief Product Officer and Founder, James and James Fulfilment.

“Unfortunately, wastage is all too common in the fashion industry, which isn’t great from either a commercial or sustainability point of view. As we continue moving through this period of economic uncertainty, minimising wastage will be essential for growth, and there's a long-term impact on the planet to consider, too.

“Minimising wastage is easier said than done, of course, especially in the fashion industry. With that being said, there are plenty of inventory management tools on the market that can help e-commerce businesses to properly optimise their inventory, rather than going in blind or relying on gut feelings.”

ASOS has also said to be considering selling via other websites in overseas markets or sharing warehouse space with others, in an effort to cut costs. It has not ruled out exiting some markets completely.

This news appeared on PMW’s sister title Campaign