Asos CEO: ‘Discounting is too much of a blunt tool’

Asos chief executive Nick Robertson has vowed to refocus on value and service, rather than promotions, after the online retailer was forced to issue its second profit warning in three months.

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Asos said it now expects to generate profits of £45m this year, down from a previous forecast of £65m. The firm admitted that a strong pound had forced it to “become detached” from its usual strategy and increase promotions in a bid to “reactivate” sales.

Retail sales were up, rising 25 per cent in the three months to the end of May. However, most of that growth came in the less profitable UK market, where sales rose by 43 per cent as British shoppers snapped up the deals.

In international markets sales growth slowed to 17 per cent. Speaking on an analyst call yesterday (5 June), Robertson said the average selling price was down by around 8 per cent but in the eyes of international customers that was still an increase, with Australia particularly badly hit and customers seeing a 15 per cent price rise.

He admitted that the rise in promotional activity had only led to short-term spikes in sales and not a sustained recovery. During the quarter, discounts accounted for around 8 per cent of Asos’s sales, up from the usual levels of 3 per cent.

“We attempted to counteract price inflation through a high level of promotion and discount activity. This led to short-term spikes but it wasn’t a sustained recovery. Some old lessons relearned here, discounting is too much of a blunt tool,” said Robertson.

Asos instead plans to invest in price, experience and delivery solutions to improve the value and offer for customers. It will do that through efficiency savings it makes once projects such as zonal pricing and its new European distribution centre go live.

It has already cut the threshold for free delivery in the UK to £15. Robertson said early indications are that the move increases average basket size, but warned that it was too early to see if this translated into sustainable consumer behaviour in terms of returns and frequency.

He also ruled out any step up in digital marketing spend as a means to boost sales in the medium term, having announced plans earlier this year to slow digital marketing growth and focus on efficiencies. However, once its improved pricing and customer proposition are in place, Asos will increase digital marketing to “optimise” sales.

“What we won’t be doing in the medium term is ramping up marketing activity. The reason for that is the best pound deployed will be back into product pricing, quality and customer delivery expectations – that has always been core to our strategy.

“As we improve pricing and experience then we will release more digital marketing. We do that to get optimisation. Once we have boosted profitability by territory and conversion by territory then we can amplify that with more marketing,” he added.

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