Asos has revealed plans to increase marketing investment, despite short-term cost pressures brought by rising inflation, as it looks to “capture significant long-term opportunities”.
For the six months to 28 February 2022, the online retailer’s marketing investment amounted to £119.7m – a more than £10m increase on the same period in 2021, when marketing spend totalled £108.9m. Marketing rose to 6% as a percentage of sales, up from 5.5%.
Speaking on a call with investors today (12 April), Asos’s director of group finance, Katy Mecklenburg, said the rise in spend comes as the retailer looks to drive brand awareness and consideration more widely.
“A key part of Asos’s strategy is to invest in marketing to drive brand awareness. This investment, which is focused on broad-reach marketing, begun in H1 despite the cost pressures we have faced elsewhere in the P&L. [It represents an] over 50bps [basis points] increase in marketing costs,” she said.
Asos is anticipating a “sustained level of promotional activity” in the market over the second half of the year, given the potential impact of inflation on consumer sentiment and discretionary income, she added.
During the first half, Asos says it rolled out the “test and learn” phase of a broad reach marketing campaign targeting women aged 18 to 34 in the UK, US and France. It did this via platforms including TikTok, YouTube, Snapchat, Hulu and Roku for a 90-day period, ahead of the planned “scale-up” of the campaign at the end of its 2022 financial year.Asos plans to increase marketing spend to capture long-term growth
The retailer says it has received both “positive feedback and constructive criticism” that will be taken on board ahead of launching the next iteration.
“The critical learnings are about how we activate the creative, and what’s interesting is we saw a much better pick-up in customers who were already aware of Asos than we did in customers who weren’t aware of Asos, which suggests we need to be more direct in how we get that creative cut-through,” chief financial officer Mathew Dunn said.
Dunn added Asos expects the “scale-up” efforts to take place from the fourth quarter of the year onwards.
“We will need to do this in a deliberate manner, continuing our test and learn approach, and ensuring we balance against the reality of the consumer environment as it evolves,” he said.
Overall, the business delivered revenue growth of 4% in the six months to 28 February, and an adjusted profit before tax of £14.8m. However, this is down from £106.4m in the same period in 2021, an 87% drop.
According to Asos, this decline reflects the expected unwind of all Covid-related benefits, which it puts at £48.5m, investment in marketing, as well as “significant” cost inflation and a rise in warehouse labour, freight and delivery costs, which it says it partially offset by cost efficiencies of around £50m.
In the UK, Asos grew total sales by 8% to £895.5m, but says the six month period was “tough” compared to the comparative periods in its 2020 and 2021 financial years.
Commenting on the results, Pippa Stephens, apparel analyst at GlobalData, says while Asos experienced a “significant deceleration of growth” in 2021, it was expected with physical stores reopening after the pandemic’s peak.
“The ongoing global supply chain crisis notably impacted its performance,” she says. “Asos has also felt the pressure of increasing inflation, particularly in its freight and delivery costs, which took a toll on the retailer’s margins, contributing to an operating loss of £4.4m.”
Enhancing data and the customer experience
CFO Dunn added that both the Topshop and Topman brands have “continued to perform well” for Asos since their acquisition a year ago, with sustained growth of nearly 200%. In the US alone, Topshop brand sales tripled compared to last year.
Dunn said customers who shop with these brands are “highly valuable”, have higher frequencies than the average Asos customer, and engage on a greater level with other aspects of its platform.
On top of that, Asos has plans to further “enhance” its customer offer with technology, personalisation, experimentation and “tailoring of category experiences”.
“Overall what we are seeing is that our increased level of experimentation is driving an ever-improving experience for our customers. One that is becoming more personal, more relevant and more engaging,” Dunn said.
“There is much for us still to do, and we continue to invest to build our capability, but I’m pleased by the progress we’ve made.”Asos stands to boost quality perceptions with Topshop acquisition
Premier customers, or those customers who have signed up for Asos’s free delivery subscription option, are also more valuable for Asos, Dunn said, both in terms of increased loyalty and improved “customer economics”.
Premier customers in the UK shop five times more frequently than non-premier customers, he said. Subscribers to the service have stepped up 24% compared to the same period last year.
“Customers are engaging with more parts of the Asos offer, which we’re really pleased to see,” he added.
Across all markets, Asos now has 26.7 million customers, up 7% year-on-year, with the net addition of 1.8 million people. In the UK, there are 8.8 million active customers – an increase of 13% in the six months to 28 February 2022.
Moving forward, Asos also plans to develop its data strategy with four key changes: setting up a dedicated data organisation led by a chief data officer, improving data governance and focusing on quality and ownership, evolving data architecture, and continuing to scale its investment in data engineering.
While actively recruiting for a chief data officer, Asos is also adding a digital product director to its executive team. Dunn said is to ensure the data strategy is receiving “consistent alignment across the whole organisation”.