The Success of ASOS as an Online Store - Case Study Example

Success of ASOS as online store Introduction ASOS is a leading online fashion store from UK. It caters to both men as well as women. It started its operations as an online store in year 2000. Since starting, it targeted he fashion conscious consumers which belonged to age group of 15-35 years. There are around 9,000 products which makes the range of the various fashion related availability. The success of the store could be easily gauged from the fact that there are almost 450 new fashion items which are added every week to its range. These products comprises of women’s fashion wear, menswear, accessories, jewellery and beauty products and much more. Another feather in its cap of success comes through the fact that ASOS has been able to attract 3.3 million shoppers every month to its online store. Over and above it has 1.8 million registered users also. As an online store of such vast scale, ASOS requires a substantial background operation to fulfil orders and to provide customer service. Few years ago, ASOS had very minimal warehouse space of mere 550 square metres. But as the scale of operation of this online store has increased, it increased the warehouse space to 32,500 square metres. Similarly the employee strength of this online store consisted merely of forty seven permanent staff. But again with the increase in scale of operations, it has increased to almost five times which makes 250 employees. These human and physical resources have helped the store to meet the increasing demand. Last year, the turnover of the store increased by almost 90% year on year basis. In This increase in turnover has translated into huge profit margin and the profit as of now stands around £7 million. Developmental Aspects Like any other business venture ASOS seek to develop and grow. It endeavours to increase profits and add value to its shareholders. It wants to increase the overall volume of business which will further result in significant reduction in its overall cost structure. This is what is termed as scale benefit or economies of scale. ASOS has been exploiting the theory of Economies of Scale to its fullest extent. For an instance, as ASOS grew, it required more warehouse space and enlarged distribution network. The operations became more and more efficient with the increase in transaction as the overall cost get distributed over more numbers of transactions. ASOS mandatorily passes on part of this benefit to its customers so that they felt benefited in the deals with ASOS. Being larger in size as far as the consumer base is concerned, ASOS started enjoying better deals with its suppliers also. Moreover as the order quantity increased markedly, ASOS eminently started enjoying bulk discounts, which further reduced its operational cost. Nature of Growth There are many ways a company can grow. The simplest among them can be growing by increasing the turnover or sales of the products or services it offers. This is what is called internal growth and also referred as organic growth. The other way round is to grow by acquiring any other business or merging with a different business entity. This kind of growth when achieved is called external growth or inorganic growth. As far as external growth is concerned, a company can adopt two main strategies. It can pursue a strategy of what is called as horizontal integration. This occurs when a company takes over, or merges with, a direct competitor. For example, when the supermarket chain Morrisons acquired the rival Safeway chain in 2004, it simply created a larger supermarket chain. Companies can also seek to grow through a strategy of vertical integration. This is when it acquires a business at a different stage in the chain of production. It may acquire businesses that were previously its suppliers or its customers. For example, a furniture manufacturer might purchase a chain of furniture stores so that it can sell its products direct to consumers. It would previously have looked to sell its products to this retail furniture business. Acquiring or merging with customer businesses is called forward vertical integration. The manufacturer could also choose to merge with one of its suppliers, such as a timber merchant. This would give it more control over one of its key inputs. Merging with suppliers is called backward vertical integration. As far as ASOS is concerned, it achieved rapid growth internally. It has not grown by taking over any other business entity or merging with any. It has achieved this growth by increasing its customer base. This customer base has been increased by making them available, large number of brands and wide product range at any given time. Over it, the customer has an aspect of convenience. It need not to go to any physical store. Customer can surf more easily whatever the requirement is, through user friendly internet enabled technology. As a matter of fact, ASOS has grown rapidly without creating any sort of trouble caused to any other business entity apart from the stiff competition that that it created. Thus it can be said that the rapid growth achieved by ASOS is perfectly a positive occurrence as far as the business Perspective is concerned. Developmental Hurdle But the rapid growth didn’t come that easily even for ASOS. A rise in demand over a relatively shorter tenure of time had generated additional costs. These costs needed money to fulfil orders. For instance, ASOS online store required extra staff and labour to meet the orders. It needed to buy in more stock or supplies to meet the ever increasing demand. ASOS had to meet these costs before it received the proceeds from the additional sales as in order to make the products available in the store it had to purchase them beforehand and make it ready in the warehouse to supply to the customer when needed. This has led to some cash flow difficulties. This made the company to keep relatively larger capital at its disposal. Even though ASOS had enough capital to finance increasing demand, it still faced some problems. It sometimes ran into distribution difficulties. Improving the Business ASOS strategy of internal growth has shown substantial results. It has managed to satisfy increased demand. The company has also increased its market share. The company recognised that the conditions were right for an online retail business in the fashion retail sector. The company has used the Internet as the primary growth tool. It has tapped into the rapidly expanding online retailing market. The various factors that helped the company in its growth are: • Huge online spending in the UK (nearly £30.2 billion) • Huge number of online shoppers (nearly 25 million) • Internet access growth with huge rise in broadband connections ASOS has specific target segment of young (16-34) fashion-conscious consumers which made 20% of the Internet shopping population in the UK. ASOS offers an extensive and diverse range of products for men and women. Its departments cover: • own brand clothing • brands – high-street and designer • footwear • accessories, for example, sunglasses • jewellery • swimwear. As well as its own brand, ASOS also enters into collaborations with designer labels. This enables it to provide well-known brands that appeal to its young, fashion-conscious target market. ASOS stocks over 400 brands including: • Diesel • All Saints • Fred Perry • Levis • Adidas • French Connection Communication for growth ASOS works in a rapidly changing market. It must keep up with developments in web technology. Customers can now track their orders online. Shoppers can refine the products they view on ASOS, by choosing colours, sizes and brands to suit. The company tries to keep its website current by adding articles of interest to fashion conscious shoppers. This content is refreshed every week to retain the customer’s attention. To enhance the shopping experience, ASOS has increased the size of product images on the web by 250%. It has also used a ‘catwalk feature’ for women’s wear. This shows how the products fit and move to give the customer the best representation. The ASOS ‘Style Blog’ is updated daily. This provides visitors to the website with features such as ‘Daily Shop’, ‘Catwalk trends’ and the latest fashion and celebrity news. The company uses a number of other communication channels to drive growth: • It has its own ASOS monthly magazine. A menswear version of the magazine was also launched in May 2008, featuring practical style advice, entertainment news, band interviews and aspirational fashion stories to appeal to young male consumers. • It has emails newsletter which are send twice a week to 1.8 million people who have chosen to receive it. This significant investment in creative resources has helped to increase sales. • As part of its PR campaign ASOS promotes its products in the consumer press. • ASOS takes a ‘best friend’ approach to help build customer relationships. This means that customers recommend other people. Customers feel they have a personal relationship with ASOS and therefore want to share this with their friends. This type of ‘word-of-mouth’ recommendation gives results above the industry average. References: 1) www.asos.com, surfed on 4th November 2009, 2345 hrs GMT 2) www.thetimes100.co.uk, surfed on 4th November 2009, 2345 hrs GMT 3) Hayes. R., Pisano, G., Upton, D., and S. Wheelwright, Operations Strategy: Pursuing the Competitive Edge, John Wiley & Sons, Hoboken New Jersey, 2005, p. 24. 4) WISE, Richard and Peter BAUMGARTNER, "Go Downstream: The New Profit Imperative in Manufacturing." Harvard Business Review. September-October 2008. 133-152. 5) Riggins, F. J. and Mukhopadhyay, T., (1994): Interdependent Benefits from Interorganizational Systems: Opportunities for Business Partner Reengineering, Journal of Management Information Systems, Vol. 11, No. 2, pp. 37-57. 6) Ackenhusen, M., and S. Ghoshal. “Canon: Competing on Capabilities.” INSEAD, Case # 392-031-1 (1982) Read More