Asos plans to increase marketing spend to capture long-term growth

Asos has revealed plans to increase its marketing spend in international territories over the coming financial year, as it aims to become a £7bn business within the next three to four years.

In its full-year results to 31 August, the online fashion retailer recorded sales growth of 22%, with “exceptional” growth of 36% in the UK, as well as “strong” growth in the US at 21%. Sales in the EU grew 15%, while the rest of the world grew 6%.

The brand also grew its global active customer base to 26.4 million, helping to drive an adjusted profit before tax of £126.3m – up 30% on the previous year.

At the same time, Asos increased its marketing costs as a percentage of sales by 140 base points, from 3.7% in 2020 to 5.1%. The retailer invested into digital marketing to drive customer acquisition, as well as social media engagement to drive awareness and support the relaunch of the Topshop, Topman and Hiit brands, which Asos acquired from the now-collapsed Arcadia Group in April.

In particular, the fashion company worked to increase customer engagement through TikTok and Snapchat, which it claims are popular channels among its target audience of 18- to 34-year-olds.
Asos credits marketing’s role in record results

The integration of the Topshop brands progressed well over the second half of the year, with sustained triple digit sales growth. Growth was particularly “outstanding” in the US, chief operating officer and CFO Mat Dunn says, which now accounts for 16% of global Topshop sales. Asos has also established a partnership with bricks-and-mortar retailer Nordstrom to help drive growth in the country, with the Topshop brands to be sold in select stores from the first half of 2022 in return for Nordstrom taking a minority stake.

Overall, Asos’s retail sales in the US grew by 18% over the year to £442m, rising to £466m when including income from other services. In the UK, overall sales grew 36% to £1.65bn, as a reduction in churn rates coincided with strong growth in new customers. The retailer gained 1.4 million new customers over the period.

Despite industry-wide supply chain pressures and elevated freight and Brexit-related duty costs, Asos says it will invest to capture long-term growth next year, driving an approximately 1% increase in marketing as a percentage of sales. That marketing investment will particularly focus on driving international growth.

As a result, the retailer expects profit in the range of £110m to £140m, which could mark a decline on this year’s level. Full-year sales growth over the next financial year is expected to be in the range of 10 to 15%, constrained in the first half due to the ongoing supply chain crisis.

However, the second half is anticipated to deliver better results, due both to the increased marketing investment and to higher event-led demand.

Five strategic pillars

Asos also claims to have a clear plan in place to deliver £7bn of annual revenue within four years.

“There is a huge market to go after and we think we are in a very strong position to do so having laid the foundations to take share,” Dunn said on a call with investors today (11 October).

“We already have a great customer offer, but we plan to improve this further by transforming our loved Asos brands into truly iconic brands that are exclusive to Asos, by increasing our speed to market, and by leveraging the strength of our buying, design and merchandising teams to incubate and create new brands.”

In doing so, Asos plans to add at least £1bn to its annual own-brand sales.

Growing its own brands is one of five strategic pillars Asos has unveiled in order to reach its £7bn goal. The others include becoming a “truly global retailer” and doubling the size of its US and European business, improving and personalising the customer experience using data and artificial intelligence, and creating an “effective, efficient and sustainable” operating model.

Asos’s final pillar is to enhance its offering as a multi-brand platform, partnering with brands to expand high potential categories. The retailer plans to onboard more third-party brands on to its platform, particularly in the Face + Body and Sportswear categories.

Asos saw particularly strong growth in its Face + Body offering over the year, with sales up 49%. That category alone is now a £150m business, the company claims.

“Asos has delivered another strong performance, with continued growth in customer numbers driving further increases in sales and profits,” Dunn added.

“Looking ahead, while our performance in the next 12 months is likely to be constrained by demand volatility and global supply chain and cost pressures, we are confident in our ability to capture the sizeable opportunities ahead. In the last two years, we have transformed Asos with investment in infrastructure and the customer offer; we have generated strong revenue growth and free cash flow and improved structural profitability. But we know there is more to do.”

Dunn now leads the Asos business on a day-to-day basis, as Nick Beighton has stepped down as CEO. A search for a replacement CEO is underway, led by new chair Ian Dyson.