Asos rethinks marketing spend as stark profit warning rattles retailers

Back in October, Asos revealed it had reduced its traditional ad spend from 6% of revenue to 4%, / Asos

Asos boss Nick Beighton has revealed that its marketing spend for 2019 will be "stronger" than originally planned as it looks to appeal to shoppers following a stark profit warning.

Following an "unprecedented level of discounting" across the retail industry and November sales that were "significantly behind," Asos told investors during an unscheduled update on Monday (17 December) to expect just 15% growth for the year to August, down from earlier projections of 20% to 25%.

In October, Asos revealed it had reduced its traditional ad spend from 6% of revenue to 4%, with no immediate plans to up it. Instead, it's been working with ad agencies like Uncommon to develop new in-house brands and investing heavily in voice tech and AI to convert browsers to buyers.

However, as part of a "recalibration" plan to get the retailer back on track Beighton conceded that more money would be set aside for overall brand marketing than initially intended.

"In taking down some of our costs, what we've also anticipated is ramping up some of our marketing expenditure to acquire more customers for the remainder of the year. So, I'm expecting marketing expenditure to be slightly stronger than planned," explained the chief exec.

For the three months to November, Asos reported a 14% bump in total group sales, but Beighton noted that the month ahead of Christmas was "significantly behind" and this dip to growth had come at a cost to profit margins and earlier forecasts.

Following on from more extreme warnings from Marks & Spencer and John Lewis, retail analysts are now questioning the whether online stores are fairing better than their high street rivals.

Kate Heseltine, analyst at Edison Investment Research, said: “The significance of the warning by ASOS, one of the leading online retailers, could hardly be higher for the consumer sector. Coming at the end of [Asos'] first quarter, it entails a substantial judgment call for the rest of the year to August 2019 – a call that management has made negatively."

At the time of writing, Asos shares had plunged by 40% on the update. Rival online retailer Boohoo fell 11.1% on the news, despite saying its trading was in line with expectations. Wider FTSE 100 retail stocks also dragged on the news.

“The current backdrop of economic uncertainty across many of our major markets together with a weakening in consumer confidence has led to the weakest growth in online clothing sales in recent years,” Beighton added.

While the UK market, which represents 40% of Asos' total business, has outperformed the group in the most recent three months with 19% growth, the same metric in France, Germany and Australia has been weak.

As well as rethinking its marketing investment, Beighton hinted that Asos will need to reconsider how it approaches Black Friday. This year, in line with previous years, it knocked 20% off all products where rivals offered more significant cuts and promotions.

"We probably could have gone harder, like-for-like with the 20% offer, when we looked at what was out there it didn't seem to be comparable," he said.

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