Asos highlights negative impact of returns.
Online fashion retailer Asos highlighted how the cost of delivery and returned goods is continuing to weigh heavily on its ability to generate profits as it reported a loss of £290 million for the first half of the year.
Alongside the reporting of the loss for the six months to February 28 the company revealed the progress it is making in its year-long plan to reduce costs by £300 million, which runs until August 2023 and integral to this is the cutting of onerous costs associated with delivery and the return of unwanted items.
The strategy is three-pronged. Firstly, there is a drive to remove unprofitable brands, which is often determined by the level of returns they generate, along with heightened promotional activity. The company has so far identified 35 such brands and has delisted them from its websites.
Secondly, a review of profitability across countries has been undertaken that includes addressing the issue of profits being held back by free standard delivery. This has been removed in five non-core European countries and in some territories charges have been added and thresholds brought in, or increased, on minimum order values.
Thirdly, an investigation of profitability at the individual customer level is in progress and has revealed a group of customers that have a seriously negative impact on overall group profitability. From the total 25 million engaged Asos shoppers there are 6% of this cohort that generate a loss per order of £6 due to their heavy reliance on discounted products and also, most tellingly, their high rate of returns and significantly more frequent levels of ordering they undertake compared with other shoppers.
This group’s activities have cost the company a total of £100 million, which clearly represents a serious level of negative impact on Asos’s ability to deliver profitability. When this is combined with the cost of delivery and returns across the rest of the customer base then this highlights how Asos has to get a firm grip on this critical part of its business.
It is certainly not alone in needing to address this issue because all businesses that have a meaningful proportion of their revenue generated online will very much recognise the challenge with which Asos is grappling.