James Pow, senior retail adviser at business advisory firm Quantuma, analyses the departure of Asos CEO Nick Beighton and the reasons for the profit drop the company is expected to see.
The departure of Nick Beighton from Asos as chief executive should not have come as a complete surprise. There are multiple reasons for his departure, culminating in the profit drop the company is expecting to see throughout the remainder of this year and into 2022.
Asos had become a darling of the online sector, selling well over 850 brands globally and the share price had performed extremely well in the last year. However, the retailer had warned of slowing revenue growth and attracting increased costs related initially to Brexit, but with growing issues in the global supply chain becoming increasingly evident. All this was against a positive background of reported revenues accelerating to circa £1.3 billion for the four months to 30 June. This was well up on the £1.1 billion of like for like revenues of last year.
The immediate impact of the pandemic on its supply chain, freight and associated indirect labour costs have started and will continue to dampen profits. The company reported that it still expected to meet annual profit expectations and not surprisingly the shares closed 18% wiping circa £750 million from its market valuation and thrusting it to its lowest stock level in almost a year.
Reading behind this somewhat contradictory statement on expected annual profit, the group stated that the costs of shipping from China had risen ten-fold along with increased airfreight associated costs and further premiums now being incurred with fewer planes in the sky. It went on to state that Brexit had added two weeks to its existing supply chain between the UK and Europe. The company acknowledged that this was negatively affecting consumer anticipated delivery and one would ascertain that their existing systems were struggling to respond to these mounting changes on demand.
What is concerning and illustrates in some part the downgrading in the share price, is that this was not factored in earlier in the company’s risk assessments as most other companies would have done in their strategic response, particularly with strong balance sheets.
Nick Beighton initially said that customer prices for Asos had not risen and that the company had “invested heavily” in keeping prices low and was committed to continuing to do so. The chief executive said the company would be “mindful of the continued impacts of the pandemic on our customers in the short term” adding that the changes brought about by COVID-19 would still benefit online retailers in the long run.
There is a degree of contradiction in Beighton’s remarks, suggesting strategically that Asos would maintain lower prices to its customers while announcing such increasing costs on its retail model. All of this while declaring the expectation of meeting the annual profit outturn.
The recent quarterly drop in the margin of 1.5% due to higher freight costs and unfavourable foreign exchange rate movements is another factor and reason for the Asos share price drop and the CEO’s departure.
The Asos share price had performed well over the last year. However, the share dropped after the company released its trading statement. Management cited the continued uncertainty brought about by the pandemic, inclement weather and supply chain issues as contributors to their weak market demand. This clearly raised fears of the sustainability of their share price.
Like other businesses, management urged caution on the outlook for the rest of 2021 in light of the rising cases of COVID-19. Travel restrictions, delayed and cancelled holidays were a factor in making planned wardrobe purchases difficult. Total group revenue did grow by 21% to £1.3 billion, mainly driven by the strong performance of 36% in the UK domestic market. Impressive growth in the USA of 20% market share also assisted in driving the active customer base from 24.9 million to 26.1 million at the end of February 2021.
Asos did have cause to celebrate following the announcement of its partnership with
US-based multi-channel retailer Nordstrom, based on the West Coast. Nordstrom is embarking on a minority interest in the company’s brands including Topshop, Topman, Miss Selfridge and HIIT and previously sold Topshop and Topman clothes in the US when the brands were owned and run by Arcadia.
In securing the collaboration, Nick Beighton had performed well. The deal demonstrates the future need of businesses to team up where over-lying synergies exist in their consumer profiles. This is a strategically important requirement that intelligent businesses will embrace as they seek to both retain and increase their customer numbers.
Asos revenue growth has been exemplary in the past, notably benefiting from the pandemic as High Street retailers were closed. This led to a windfall and strong demand for e-commerce platforms.
However, changes to customer habits were cited by management in Asos’ earnings statement as a factor; the inclement weather assertions drove customers to winter wear from spring/summer wear. This all points to pressure on their current systems in dealing with these fluxing impacts from the supply chain, the pandemic, Brexit and resultantly the management of the cost base.
The recent quarterly drop in the margin of 1.5% due to higher freight costs and unfavourable foreign exchange rate movements is another factor and reason for the Asos share price drop and the CEO’s departure.
With the easing of COVID-19 restrictions and the opening of retail, I would expect that the demand for online retail may soften somewhat. In my view, the company has experienced timing mismanagement of expectations - both in its statements and trading updates, worsened by the contractions alluded to earlier.In realising this, the Asos board were left with no other option than to part company with its chief executive in a bid to appease disgruntled shareholders and the financial analysts who had reacted so alarmingly to the trading releases. Moving forward, Asos will appoint a new chief executive, hoping to resolve their current fall from grace under the new leadership.
Sarah Taylor is a Content Author at High Speed Training, the specialist online training provider to the hospitality sector. She advises cafes, pubs and restaurants on how they can adapt their business for delivery services in response to Government guidelines in order to stay profitable:
Following the Government’s call to close cafes, pubs and restaurants, many establishments have taken the initiative to temporarily change their business models in order to keep a source of revenue and operate solely as a ‘takeaway’ or delivery service. Customers are keen to show their support, as demonstrated by the widespread use of #supportlocal on social media. Meltwater data tells us that on the day businesses closed their doors to dine-in customers, the hashtag was mentioned 21,700 times in 24 hours.
In the first week of business since shutdown measures were introduced, we collaborated with market research company OnePoll to conduct a nationally representative survey of more than 2,000 people in the UK. The nationally representative survey highlighted continued widespread support and demand for local hospitality venues to serve their communities during lockdown – 83% of people would order food and drink to enjoy at home. Businesses therefore have the opportunity to continue generating an income off the back of customers’ new found appetite for supporting local establishments.
While the new legislation allowing takeaway and delivery services, as well as the online public support, represents a much-needed lifeline for hospitality businesses, it brings with it new challenges and a steep learning curve to ensure operations are run effectively, safely and are still profitable. New food hygiene procedures and contactless delivery methods are two of the many considerations that managers across the UK are grappling with.
Businesses therefore have the opportunity to continue generating an income off the back of customers’ new found appetite for supporting local establishments.
To help guide pubs, cafes and restaurants as they create new survival strategies, we asked the nation what would make them more likely to order a takeaway or delivery service from their ‘local’. Paying online and the promise of high food hygiene standards were the two most popular criteria, both voted for by 42% of Brits, providing a useful indicator for the information businesses should be promoting in order to continue generating revenue during these turbulent times. ‘Contactless’ delivery with no face-to-face contact was third (28%).
Recognising the demands on supermarkets currently, many people also pointed to a preference to avoid stores where possible (25%), or a lack of available delivery slots (22%), which provides a solid rationale for businesses selling groceries direct to the public such as freshly made pasta and sauces to tap into a new pool of potential customers.
From a marketing perspective, a quarter of people (25%) indicated that they would like to be made aware of healthy meal options. Online interaction whether via websites or social media channels was revealed to be the least likely way to prompt an order and increase profitability, for example hosting virtual cooking classes.
Looking internally, implementing new operations at the same time as meeting a surge in demand for delivery can be extremely difficult for businesses to manage. Wherever possible, businesses should try to develop short, medium and long-term contingency plans that factor in processes for keeping standards high, timely order fulfilment, balancing good stock levels of fresh ingredients and increase income as a result.
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One of the biggest challenges will be choosing how to fulfil orders. Look at the benefits and limitations for delivering food direct to customers or signing up to a delivery provider if within a catchment area. The likes of Deliveroo and Uber Eats have recently published guidelines for restaurants as they see sign-ups in urban areas soar. Those outside of their catchment areas or that prefer to go solo may prefer to utilise software from the likes of Access Hospitality. Whichever route is chosen, the method of serving customers needs to be in line with profit margins in place, adhere to the legal requirements for food delivery services and work efficiently for both the business and consumer.
As well as choosing the most convenient delivery model, businesses should also review and condense their menu to streamline their service and adjust opening hours to target peak time periods in order to guarantee profitability. These are disruptive and defining times for the hospitality sector, and businesses need to be reacting quickly to the constantly evolving situation. Fully grasping how and why Brits are changing their eating habits, as well as carefully reviewing how best to modify their offering are just some of the simple steps businesses need to be taking into account in order to keep up with the change in demand.
Finance Monthly delves into the potential impact of an ‘Amazon tax’ and the alternative solutions that can help the struggling British bricks-and-mortar retailers.
With a series of high-profile collapses and CVAs, including the recent turbulences that House of Fraser is faced with, Britain has seen its fair share of high-street horror stories in 2018. Stores like Toys R Us UK, Maplin and Mothercare are all facing extinction, whilst online retailers such as Amazon are stronger than ever, cashing in $2.5bn per quarter and paying less and less corporation tax with Amazon’s UK tax bill falling about 40% in 2017, and it paying just £4.6 million ($5.6 million). In times like these, the UK retail industry has naturally called on the Government to review its outdated corporation tax system and take action to help the struggling high street. Chancellor Philip Hammond has in turn announced that he is considering a special retail tax on online business, dubbed the ‘Amazon tax’, in order to establish a “level-playing field” for online retailers and high-street shops. But is a new tax really the solution that will balance the market out? Will it be the solution that traditional trade needs?
Is Amazon’s Existence the Biggest Problem?
Consumer habits are changing rapidly with the continued growth of online shopping, but the truth is that the extraordinary success of web traders is only one of the aspects to consider when looking for the reasons behind the decline in traditional retail. And even though a hike in the tax that Amazon pays may seem like a necessary and logical step, it will be nothing more than a minor distraction from the bigger issue and something that will mainly benefit the Treasury.
It is worth noting that the UK store chains that have collapsed recently did so due to not having the right products at the right prices, not staying up-to-date with consumer trends, not targeting the right customers or not investing enough in their businesses. Surely, online-only merchants have transformed the trade landscape and the UK tax system needs to be adjusted in order to reflect the current retail dynamics – especially when Amazon’s tax bill for 2017 was only £4.6 million on £2 billion of sales. But is the fact that the web giant is paying such a low amount of tax the reason for the collapse of a number of bricks-and-mortar retailers? I think not.
Moreover, as Bloomberg points out, an internet shopping tax could end up backfiring and hurting the bricks-and-mortar retailers it is intended to help. According to the British Retail Consortium, in 2017, more than 17% of sales were made online. Over half of them were with businesses that also have shops. Thus, retailers such as Next Plc, which has both online and offline businesses, could face “a double tax whammy”.
The Real Problem
Driving restrictions around city centres, increased parking charges by local councils and state demands such as minimum wage legislation and Sunday trading laws have had a negative impact on bricks-and-mortar retail. Then there is the main challenge in the face of sky-high business rates which have been the bane of countless entrepreneurs trying to establish a high-street presence. In an article for The Telegraph, Ruth Davidson wrote that the UK retail sector, which makes up 5% of the country’s economy, is paying “25% of all business rates, over £7 billion per year”. One might argue that in order to help bricks-and-mortar retailers and keep British town centres bustling with thriving commerce, politicians could perhaps work towards reducing the financial burden they’re faced with, before punishing web giants for offering an easy and convenient way to shop in this digital era. In order to keep up with their online competitors, traditional stores need to focus on technology innovation and redesigning the experience that the modern-day customer expects. But most importantly, they need the budget to do so and a reduction in business rates for high-street stores could be one way to provide them with some extra cash to invest in technology.
Another thing to consider, as Andrea Felsted suggests, could be raising business rates for offices and warehouses and cutting them for shops. That would “address the disparity between shopfront-heavy retailers and online-only businesses, which rely on distribution centres to serve their customers”.
A potential Amazon tax for all web-only retailers will not help bricks-and-mortar retail to innovate. Surely, it will level the playing field, but apart from that, all we can expect will be a slowdown in online shopping without doing anything to solve the current problems that traditional traders are struggling with.
Written by Steve Powell, Director of Sales – EMEA at PCMS
No matter which (or how many) channels consumers shop through, a smooth end-to-end experience is now their expectation. They care little for how difficult retailers find it to serve them consistently and effectively; they simply want what they want, whenever and wherever they want it.
The good news for consumers is that most retailers now have a firm grasp on delivering to this expectation. However, for even the more mature omnichannel organisations, there is often a sticking point: payments.
When it comes to customer service, payments are the ‘last mile’ in conversion, and abandonment rates due to poor performance are still higher than most retailers would like. Online, for example, figures compiled by the Baymard Institute show that 74% of ecommerce carts were abandoned in 2016. This is even more concerning when you consider that the average abandonment rate was 69% five years previous.
Payment pain points are not solely an issue for the web, either. Research conducted by telecoms operator EE revealed that 73% of shoppers will abandon their purchases in stores if forced to queue for more than five minutes. A slow or unreliable payment experience can be a major contributor to waiting times.
Prioritising payments
Many retailers are investing heavily in the checkout experience both on and offline to enhance the customer experience, and it’s vital that payments are prioritised as part of this initiative.
For example, online, retailers that are choosing to work with a payment gateway provider need to ensure that it integrates seamlessly with the rest of their site. Suddenly redirecting shoppers to an inconsistently branded – or even unbranded – payment page can be jarring, and make them start to question its authenticity, which in turn may cause basket abandonment.
Equally, the ecommerce payment experience needs to work around local customer needs. This means creating a secure experience without making authentication overly burdensome, while also giving shoppers the option to pay in their local currency, through their preferred payment method.
In the store, meanwhile, many organisations are rolling out mobile Point of Sale (mPOS) technology to provide a richer, more personalised customer service in their stores. However, many are focussed on getting shoppers to convert – access to stock availability, product information, product demonstrations and reviews – than what happens when the customer is ready to buy.
The most effective in-store technology solutions embrace the complete customer journey right through to the checkout, and that means integrating payments into device capabilities.
By making payments a key feature, store associates are empowered to enhance customer service in other ways. One example of this is queue busting during peak periods, as mPOS liberates front-line staff from fixed checkouts and allows them to take payments anywhere in the store.
Checking in – not out – with customers
As I’ve already touched on, mobile store technologies enrich customer experiences by drawing on digital information. Many retailers are already looking at how operational data and knowledge of shoppers’ online behaviours can enhance the shopping experience, but some solutions have the power to take this even further.
For instance, retailers such as Marks & Spencer are exploring ‘mixed basket’ capabilities at the store checkout. When a shopper comes to pay or pick-up their click & collect order, they can also be given the option to pay for items that have been placed in their online shopping basket when they’ve been browsing the web.
This is an effective example of how activities in multiple channels can come together at the point of transaction. A well-integrated payment capability can enable the customer to kill two birds with one stone, and the retailer to increase the value of that customer interaction with relative ease.
Making shopping and transactions indivisible
Undoubtedly, improvements have been made over the past few years in the omnichannel capabilities retailer can offer customers. The next aspect to smooth out the payment experience.
As I said at the start of this article, payments are the last mile in customer service, and therefore one of the biggest influences on customers’ lasting impressions of a retailer. Therefore, the quality of the payment experience is not just about winning or losing a sale; it can have a powerful effect on how shoppers perceive a retail brand.
With this in mind, when it comes to customer retention and loyalty, the most successful retailers will be those who prioritise making shopping and transactions indivisible. Wherever they are, whatever they are buying, the customer should barely notice they are checking out.
