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Strategic growth in the

fashion retail industry
Introduction
asos.com is the UKs leading online fashion store for women and men. Launched in 2000,
the online retailer targets fashion conscious 16-34 year olds. On asos.com there are 9,000
products available at any one time, with 450 new fashion items added every week. These
include womens fashion, menswear, accessories, jewellery and beauty products. asos.com
attracts 3.3 million unique shoppers every month and has 1.8 million registered users.

CURRICULUM TOPICS
Ownership
Growth
Market segments
Organisation structure

GLOSSARY
Shareholders: persons owning or
holding a share or shares in a
company.
Alternative Investment
Market (AIM): the junior market,
established in 1995, by the London
Stock Exchange providing trading
facilities for shares of smaller
companies.

An online service of this scale requires a substantial background operation to fulfil orders and
to provide customer service. Five years ago, asos.com had just 550 square metres of
warehouse space. Today, to meet growing demand, asos.com now has 32,500 square metres
of warehouse space equivalent in area to nearly five football pitches. In April 2005,
asos.com employed 47 permanent staff. By February 2008, it had 250 employees.

Market capitalisation: this

gives a measure of a companys
value, it is calculated by multiplying
the total number of shares issued by
the company by the current share
price.

These human and physical resources are

needed to meet rapidly increasing
demand. Sales increased by 90% year on
year for the 12 months to 31st March
2008. In April 2008, there was a daily
average of 220,000 unique visitors to
the asos.com website. The growth in
sales translates into profit. Group profit
is likely to be in excess of 7 million.

Memorandum of association:
sets out the main details of a
company including its name,
purpose and the number of shares
it can issue.

Capital: money, buildings,

machinery, equipment etc.

Articles of association: sets out

main arrangements for control and
the internal running of a company.

Ownership and management structure

asos.com is a public limited company (plc). This means that the business is owned by
shareholders and that its shares can be purchased by the general public. asos.com shares
are traded on the Alternative Investment Market (AIM), which is part of the London
Stock Exchange.
Joining AIM has several advantages for a growing company such as asos.com. AIM-listed
companies do not need to comply with the strict rules that must be followed by businesses
listed on the main London stock market. They do not need to meet any size threshold, either
in terms of market capitalisation or the numbers of shares that they issue. This means it
is easier and cheaper to obtain an AIM listing. It provides smaller companies with a chance
to raise capital through the sale of shares. This capital can be used to finance growth.
As a limited company, asos.com is required by law to have a memorandum of association
and articles of association. A memorandum of association sets out the name and
purpose of the company and the number of shares it can issue. The articles of
association sets out the rights of shareholders, the roles of directors and other factors that
relate to the control and management of the company. These documents establish a
company as a legal entity. Without this legal framework, the business would not be able to
issue shares.

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The asos.com board consists of two non-executive directors and three executive directors.
Non-executive directors do not have day-to-day operational responsibilities for the
business. They are invited to join the board because they bring experience and qualities that
can guide the strategic direction of the company.

Growth
GLOSSARY
Non-executive director:
outside director who is a member
of the board of directors of a
company but does not form part of
the executive management team.
Economies of scale: lower unit
costs that arise from larger scale
operations.
Organic growth: increasing sales
and new customers for the existing
business to improve profitability.
Acquisition: taking over another
company by buy out.
Horizontal integration:
joining another business at the
same stage of production.
Vertical integration: where a
company buys another company
that supplies it with goods or that
buys goods from it in order to
control all the processes of
production.
Forward vertical integration:
vertical integration through
combining a core business
with its buyers.
Backward vertical
integration: vertical integration
that combines a core business with
its suppliers.
Customer base: the main
customers of a business.
Market share: a companys
sales expressed as a percentage of
all sales within the market.

Most companies seek to grow. They want to increase profits for their shareholders. They also
want to increase the overall volume of business because this can lead to significant
reductions in costs. These are known as economies of scale. For example, as asos.com
grows, it will require a larger warehouse and distribution operation. As it handles more sales
transactions, it will find it easier to make these operations more efficient. It will also be able to
get better deals from its suppliers through ordering goods and services in larger quantities.
A company can grow in several ways. It can grow by simply selling more of its products. This
is known as internal or organic growth. It can also grow by taking over or merging with
other businesses. This is known as external growth. It is quicker to expand a business through
external growth. However, a company would need finance to fund any acquisitions.
A company that seeks to grow through acquisition can adopt two main strategies. It can
pursue a strategy of 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. This
was a classic example of horizontal integration.
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.
asos.com has achieved rapid growth internally. It has not grown by acquiring other
businesses. Instead, it has grown by increasing its customer base, number of brands and
products available to buy at any one time. Moreover, it has grown rapidly without incurring
the problems that this can cause for some businesses.
At first glance, rapid growth might seem to be a positive occurrence. However, it can cause
problems and a firm that grows too quickly can run into difficulties. A surge in demand
generates additional costs. It costs money to fulfil orders. For example, a business may
require extra staff to process orders or it may need to buy in more stock or supplies.
A business may have to meet these expenses before it receives the proceeds from the
additional sales, and this can lead to cash flow difficulties.
Even if the company has enough capital to finance a surge in demand, it may still face
problems. It may run into logistical difficulties and simply lack the short-term capacity to fulfil
orders. It may not be able to make products sufficiently quickly to meet demand. This
sometimes happens in the run-up to Christmas, when a manufacturer cannot produce
enough of that years must-have toy or gadget. A business that fails to meet demand risks
losing customers. It can take a long time to repair a damaged reputation.

Improving the business

asos.coms strategy of organic growth has shown substantial results. It has managed to satisfy
increased demand. The company has also increased its market share.

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asos.com has 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. As research in 2007 by the online
retail consultancy Interactive Media in Retail Group (IMRG) showed:
total online spending in the UK reached 30.2 billion in 2006
the number of UK online shoppers grew from 16 million in 2003 to 25 million in 2006,
an increase of 56 per cent over four years
Internet access grew by 45 per cent in the same period, with 42 million people having
access in 2006 compared to just 29 million in 2003
the number of broadband connections more than tripled in four years, by 2006 there were
more than 12.7 million UK broadband connections.
asos.com targets its offer at a specific market segment of young (16-34) fashion-conscious
consumers. This market segment now accounts for 20% of the Internet shopping
population in the UK. According to the market research organisation Mintel, women aged
2024 are more likely than any other segment to spend their money on clothing and
footwear. The average spend per head on clothing increased by 76% in 2006 to 1,208.

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GLOSSARY
Market segment: dividing up
large heterogeneous markets with
similar needs into smaller markets
(segments) according to shared
characteristics.
Organisational structure:
defines each employees role
within the organisation and defines
the nature of their relationship with
other employees.

asos.com 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.
The clothing ranges also cater for narrow market segments, for example, for petite women
(under 53).
As well as its own brand, asos.com 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.com stocks over 400 brands including:
Diesel
All Saints
Fred Perry
Levis
Adidas
French Connection.
However, asos.com would not have grown so rapidly if it did not offer a pleasurable shopping
experience. The first step in any online business is to ensure that the website offers something
of real value to consumers, something that cannot be obtained by visiting a store or a shop.
One central question dominates asos.coms planning: why would consumers choose to buy
clothes online when they could visit a shop and see, feel and try on different items? asos.com
had to create an online shopping experience that offered convenience, choice, interesting
styles, competitive prices, all complemented with high levels of customer service such as
prompt and reliable delivery.
Heavy investment in the website and its underpinning technology has been vital. Behind
the technology and the website, asos.com has invested heavily in ensuring that customers get
what they want from the online store. Internet shoppers have very high expectations. asos.com
knows that customers must be pleased with their shopping experience.

Communication to support growth

The structure of business organisations usually alters as they grow. When a company is very
small, a manager tends to take on most managerial functions. As a company grows, it often
introduces new layers of management and organises itself into specialist departments. As it
has expanded, asos.com has developed a more hierarchical organisational structure,
with individual departments responsible for specific functions such as warehousing, product
design and merchandising.

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asos.com 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.com, 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 customers attention. To enhance the shopping experience,
asos.com has increased the size of product images on the web by 250%. It has also used a
catwalk feature for womens wear. This shows how the products fit and move to give the
customer the best representation. The asos.com 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 increased the asos.com monthly magazine to 116 pages. The first three issues
generated more than 1.5m in sales with an average response rate of 9%. This is higher
than the industry average for this type of promotion. A menswear version of the magazine
launched in May 2008, featuring practical style advice, entertainment news, band
interviews and aspirational fashion stories to appeal to young male consumers.
It emails a newsletter 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 from the
newsletter by 137% in 2007.
As part of its PR campaign during 2007 there were 2,236 fashion editorial pieces about
asos.com and its products in the consumer press. This was an increase of 59% against 2006.
asos.com 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.com and therefore want to share this with their friends. This type of word-of-mouth
recommendation gives results above the industry average. Research on traffic to the asos.com
website indicates that around 15% of customers visit the site following a personal
recommendation. In the last customer survey, 73% of customers stated that they would
recommend asos.com to a friend. Furthermore, in a survey to find out levels of use of the
customer magazine, 60% stated that they share their copy of the magazine with at least two
other people.

The Times Newspaper Limited and MBA Publishing Ltd 2008. Whilst every effort has been made to ensure accuracy
of information, neither the publisher nor the client can be held responsible for errors of omission or commission.

As it continues to grow, asos.com needs to make sure that customers still receive the highest
standard of service. Many customers still prefer to deal directly with someone one to one. It has a
team of 30 customer service advisers. This team responds by email to all customer enquiries,
such as product questions, stock requests or delivery status. asos.com has worked hard to reduce
the average response time for customer enquiries from six hours to one hour.

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Conclusion
asos.com has achieved a remarkable growth since it first began trading in 2000. Following
the dot.com bubble of the late 1990s, many people doubted the potential of Internet-based
retail businesses. It has taken careful planning to ensure that asos.com meets customer
needs. The business has grown organically. It has expanded its market share, taken on more
staff, and grown sales and profits. This growth has been achieved through systematically
planned investment in both people and technology.

Questions
1. In what ways can a company benefit from
growth?
2. What do you feel might be potential
disadvantages of very rapid growth?
3. Describe, using examples, what is meant
by horizontal and vertical integration.
4. What do you feel are the key things that
asos.com did in order to achieve managed
and successful organic growth?

www.asos.com