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ASOS profits plunge as logistics projects ramp up

ASOS profits plunge as logistics projects ramp up

Online fashion retailer Asos has seen its profits drop by an alarming 87%, as it executes transformation projects in relation to its logistics infrastructure.

Asos' pre-tax profits fell 87% to £4m for the six months to 28 February against the same period in 2018. Although double-digit growth was recorded in group revenue and retail sales performance, with a 16% retail sales climb in the UK.

During the period ASOS launched a warehouse in Atlanta to service customers in the US, while its overseas warehouse coverage includes the operations at its Euro Hub site in Berlin, which will have automation launched this month embedded into the facility. Its launch in Atlanta soon saw a dramatic spike in US conversion.

The company was confident continued warehouse, distribution investment from the second half of the year, along with staff cost investment would override offset a lower gross margin and the increase in depreciation.

These changes are as a result of transformational programme at the company as ASOS develops its logistics infrastructure and expand its global reach, whilst driving warehouse efficiency and reducing delivery costs through greater levels of local fulfilment.

The company said its Barnsley distribution centre was operating very efficiently, comfortably handling the step up in despatch volumes over peak. Maximum achieved daily output from the facility increased by another 10% year on year. Focus at this site is now on driving further efficiencies and maximising throughput. As part of this, H1 saw the installation of a dynamic buffer, representing a further step in warehouse automation.

This technology predicts demand throughout the day, having these items picked and brought closer to the packing bench in advance, further reducing processing time as well as generating efficiencies in re-picking items from returns.

Dealing with returns, ASOS’ new facility in Doncaster is now fully operational as a UK and ROW facing site, increasing processing capability alongside the existing Selby operation. ASOS now has seven sites processing returns across five different countries. A new returns processing system is currently being implemented across our facilities which will improve productivity by c.10% and remove the requirement for additional returns facilities in the medium term.

The company said: “Following completion of the current investment programme, we will have built world class automated facilities to our own specific needs in three regions to support sales growth for the next two to three years. From here we will focus on optimising efficiency across the global warehouse footprint we have built. For instance, 17% of our technology spend was directed at improving efficiency across the business, with the majority directed towards logistics.”

“We have the capacity to despatch nearly 10 million units a week as well as the capacity to process over 3.5 million returns a week. We are servicing over 60,000 pick-up drop-off (“PUDO”) locations globally and have built relationships with over 35 carriers shipping to over 230 territories. The power and reach of our infrastructure gives us confidence in our ability to achieve our growth ambitions.”

In a statement Nick Beighton, CEO, commented: “We grew sales by 14% despite a more competitive market. ASOS is capable of a lot more. We have identified a number of things we can do better and are taking action accordingly. We are confident of an improved performance in the second half and are not changing our guidance for the year.

“We are nearing the end of a major capex programme. Whilst this has inevitably involved significant disruption and transition costs, the global capability it now provides us gives us increased confidence in our ability to continue to capture market share whilst restoring profitability and accelerating free cash flow generation.

“Global online fashion is a growing, £220bn+ market. We now have the tech platform, the infrastructure, a constant conversation with our growing customer base who love our own great product and the constantly evolving edit of brands we present to them. We believe that ultimately there will only be a handful of companies with truly global scale in this market. We are determined that ASOS will be one of them.”

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