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Asos Overhaul: Can 4-Point Plan Stop the Bleeding?

A fashion-shy consumer is just one of Asos Plc’s problems as the British e-tailer reworks its business model in response to the changing times.

In a Nutshell: For starters, it lost 31.9 million pounds ($35.8 million) for the full year, a stunning about-face from the 177.1 million pounds ($198.3 million) in net income it reported a year ago. Inflation’s partly to blame but so are the supply chain problems the company brought up before former CEO Nick Beighton stepped down as CEO.

One the e-tailer’s problems is that customers are returning more of their purchases, which isn’t great when sales are doing well otherwise. And while Asos doesn’t charge a return fee, people have to pay for all of the shipping charges involved in buying and sending back unwanted items. Asos, which is rebranding Topshop and Topman, is part of a greenwashing probe by Britain’s competition watchdog Competition and Markets Authority, along with Boohoo and George at Asda.

Asos said it has sufficient liquidity and is working with lenders to amend “future financial covenants in its Revolving Credit Facility, which matures in July 2024.” This would give Asos “significantly increased financial flexibility against the uncertain economic backdrop,” it said. Renegotiating banking covenants will give it more than “650 million pounds [$729.2 million] at year end,” it added.

Fixing its cash flow is only half the battle.

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Asos’ new four-pronged plan involves updating its business model and better wrangling inventory, while streamlining and controlling costs, maintaining a “robust and flexible balance sheet,” and ensuring the right leaders are running the right culture.

At the same time, management is reviewing the business to create “long-term sustainable growth” by looking at capital allocation, analyzing the operating model, marketing investment, capital and resource allocation, and looking at customer acquisition and how it’s using digital and data capabilities. The review includes international operations, such as slowing investments in its U.S. automated warehouses. And it is writing off 100 million pounds ($112.2 million) of aged inventory to update its fashion merchandise.

“Asos is a strong business with a compelling brand, customer offer and fashion credibility, with dedicated and passionate employees. Against the backdrop of an incredibly challenging economic environment, this unique combination has enabled our business to deliver a resilient performance this financial year in the UK—but I know we as a company can achieve far more,” CEO José Antonio Ramos Calamonte said.

Calamonte told investors that trying to grow abroad has become “excessively capital intensive” and “too complex,” resulting in a company that’s overstretched globally.” Asos is now lacking in “meaningful growth” in the U.S., French and German markets. It has spent too much money in building a complex, multi-region supply chain network and now needs to rejigger capital allocation.

Calamonte, who said the company has historically underinvested in marketing compared to its peers, believes Asos has relied too much on markdowns and promotions to attract customers. The new commercial operating model will include a shorter buying cycle, speed to market and improved curation, which should benefit inventory levels going forward, he said. The e-tailer will start clearing out product earlier in its lifecycle to reduce sales and increase full-price selling, he added.

The Asos x Nordstrom partnership seems to be going well, however. Calamonte said Asos Design is now in 14 of the department store’s locations and has an expanded collection at nordstrom.com, while Asos Design orders placed at asos.com include a “click and collect” option in Nordstrom stores.

Net Sales: Group revenues for the full year ended Aug. 31, 2022, rose 0.7 percent to 3.94 billion pounds ($4.42 billion) from 3.91 billion pounds ($5.33 billion).

Earnings: The company reported a full-year loss of 31.9 million pounds ($35.8 million), or 30.9 pence ($0.35) a diluted share, against net income of 177.1 million pounds ($198.3 million), or 128.5 pence ($1.71), in the year ago period.

For Fiscal Year 2023, Calamonte said the first half will include a non-cash write off to clear out old inventory. Volatility in the macro environment means difficulty in predicting consumer demand patterns, he said. Within the U.K. market, Asos expects to see a decline in apparel sales over the next 12 months.

CEO’s Take: “Today, I have set out a clear change agenda to strengthen Asos over the next 12 months and reorient our business towards the future,” Calamonte said. “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.”