Asos CEO blames acquisition slowdown on ‘insufficient’ brand spend

Asos’s new CEO José Antonio Ramos Calamonte is blaming “insufficient” brand investment and an over-reliance on promotions with driving a slowdown in customer acquisition over the past year.

The online fashion giant swung to a loss before tax of £31.9m in its full year results for 2022, down 118% on 2021, as it battles with the challenging macroeconomic environment. Active customers grew 2% to 25.7 million, but customer growth “slowed” in the second half of the year, particularly in the US.

More than 80% of the online fashion giant’s marketing investment has been focused on performance marketing, “leaving insufficient spend focused on driving longer-term brand awareness”, Calamonte told investors in the business’s full year financial report today (19 October).

Claiming that Asos has “historically underinvested in marketing relative to peers”, Calamonte adds that allocation of marketing spend across markets had not been “effectively prioritised” or “managed effectively to ensure a return on investment”.

“As a result of this, customer acquisition has slowed in FY22, whilst the cost to acquire a new customer has increased,” he says.

Asos has also suffered from becoming “increasingly reliant” on sales and promotional deals as a tool to attract customers, resulting in “reduced newness”. According to Calamonte, this has contributed to the erosion of gross margin in recent years.Les Binet cautions against ‘senseless’ price promotions as recession looms

Gross margin fell by a further 180 basis points (bps) in 2022, from 45.4% to 43.6%.

Calamonte added that Asos’s growth ambitions have led it to become “excessively capital intensive, too complex and overstretched globally”, resulting in a “lack of meaningful growth” in its key international markets of the US, France and Germany.

A review of capital allocation is therefore underway as the business focuses on long-term sustainable growth, including a review of marketing investment, deployment of capital and resource across geographies, customer acquisition channels and digital and data capabilities.

Asos promoted Calamonte from chief commercial officer to CEO in June, following the exit of former CEO Nick Beighton in October 2021.

Asos has historically underinvested in marketing relative to peers with allocation across markets not effectively prioritised or managed effectively to ensure a return on investment.

José Antonio Ramos Calamonte, Asos

In its half year results in April, the business announced plans to increase marketing investment in the second half of the year, with a focus on broad-reach marketing to drive brand awareness alongside a “sustained level” of promotional activity.

However, when the second half proved “more challenging than expected” as the cost of living crisis hit consumers’ discretionary income and inflationary pressures affected Asos’s supply chain, planned marketing investment was reduced as part of efforts to mitigate the impact on profitability.

After pausing its broad reach marketing campaign in the US in the second half, customer acquisition and visits growth slowed.

The turnaround plan

Overall, Asos reports total sales growth of 4% in 2022, or 1% on a reported revenue basis. After accounting for £53.9m of adjusting items, adjusted profit before tax was £22m, down 89% from £193.6m in 2021.

The fashion giant’s core UK operation showed resilience and grew its revenue by 7% to £1.76bn, increasing its share of the adult online apparel market by 140bps to 10.1%. Asos’s active customer base in the UK grew 5%, but average basket value and average units per basket declined, driven “primarily” by an increase in return rates and price promotions.

The Topshop brand, which Asos acquired last year, experienced sales growth of 105%, with a particularly strong uplift in the US (200%) supported by the firm’s wholesale partnership with Nordstrom. The business credits the brand with driving margin expansion and believes the strong performance of Topshop demonstrates the “potential” for its own brands.

Asos is expecting a decline in the UK apparel market over the next year due to the macroeconomic situation, but says it is “confident” in its ability to take market share.

More than 80% of marketing investment focused on performance marketing, leaving insufficient spend focused on driving longer-term brand awareness.

José Antonio Ramos Calamonte, Asos

Calamonte has identified four key actions Asos plans to deliver against over the next 12 months, targeted at improving its ability to navigate the ongoing economic turmoil.

The first is “renewing” its commercial model with a shorter buying cycle and quicker speed to market to enable a “more relevant” customer offer, while implementing a new approach to stock clearance other than promotions to increase full-price sales.

Asos will also focus on simplifying and reducing its cost profile, ensuring a “robust and flexible” balance sheet, and “refreshing” the company culture.

Calamonte aims to encourage a “culture of innovation and creativity”, while reinforcing the business’s senior leadership team with strategic hires. In August, CMO Robert Birge left to join EasyJet, with a replacement yet to be announced. Later that month, CFO and chief operating officer Mathew Dunn also left the business in a surprise move.

“On the basis of the actions I have set out today, the team and I will work resolutely to emerge from these turbulent times as a more resilient and agile business – all the time guided by our purpose, to give our customers the confidence to be whoever they want to be,” Calamonte says.

The new CEO’s plan appears to have eased some investor concerns, with shares recovering from a 12% drop on Monday morning, according to GlobalData’s head of apparel Chloe Collins. However, shares are still down almost 80% on this time last year.