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Following a period of sustained growth in recent years, last December ASOS first issued a profit warning to investors that figures were expected to be lower than predicted. Now the apparel retailer has said they’re expecting profits of £30-£35m this year, up to 46% below their initial £55m forecast. This forecast has left investors less than impressed, with the company losing 60% of its value since the first profit alert in December.
But what exactly has caused ASOS’ recent plight, after such long sustained periods of growth? Well according to ASOS themselves the problems are in fact self-inflicted, originating from a series of operational issues in their warehouses and distribution. This shows that even sometimes the big companies can get it wrong, and it is important that other businesses look at where it has gone wrong for ASOS and learn from it.
So, for this month’s feature, we decided to breakdown where exactly it went wrong for ASOS, and the three major lessons that businesses should take away from their mistakes.
Whilst pushing for international expansion, ASOS have invested £700m in improving their warehouse operations over the last four years. Some of this investment has recently gone towards changes at their warehouse in Berlin, switching over from dated manual order processing to a more modern, automated approach. However, a move that was supposed to facilitate growth in the long term has caused recent stagnation in their EU sales. Operational failings caused by the ongoing roll-out of new software have meant EU sales are down 5% over the last four months, with the unaffected UK market up 16% by comparison.
On the issues, ASOS chief executive Nick Beighton said: “The major overhaul of our infrastructure has been bumpier and taken a lot longer than originally anticipated. We acknowledge that this is a failure in execution.”
This highlights the first major lesson, which is not to let the implementation of new systems and processes disrupt your current day-to-day.
As a long-term strategy, a move to a more automated way of working is the right move for ASOS so they can meet growing demand and keep up with competitors. However greater automation is designed to increase operational accuracy and efficiency, so it is important to have a plan that facilitates a smooth transition and carefully avoids any immediate pitfalls. Without this, you may find like ASOS that your order fulfilment and returns operations suffer as a result, causing a negative impact on sales growth in the short term.
Therefore, if you are looking to switch software systems, make sure you fully understand the process that you’re automating and ensure you test run everything beforehand. You also need to make sure you allow an adequate amount of time for staff, so that your warehouse operatives can get to grips with your new system before going live.
By understanding each operational touchpoint that will be affected by the change, you can be sure that it will positively impact on your day-to-day operations without any negative knock-on effects.
However, it wasn’t just in Europe that ASOS experienced teething issues, but also in the United States. Back in February this year, ASOS opened their new Atlanta warehouse and since then, the company has struggled with stock shortages. With the Atlanta site importing a lot of their goods from overseas, it seems that the company hasn’t been able to get products into the US fast enough to meet sales demand. Beighton has said:
“These issues have restricted product choice and availability for our customers in the US and Europe, which has a corresponding impact on sales growth in these regions, as well as profitability in the form of higher transitional costs to fix the issue.”
In response to this, Russ Mould, Investment Director at AJ Bell, has said: “We live in an impatient world where so many people want something in an instant. If ASOS doesn’t have the stock ready to ship then consumers will simply go elsewhere.”
This damning statement underlines an absolute essential for any business operating today – good, accurate stock control.
Stock control is at the very heart of all your business operations, ultimately determining how much you can sell, how quickly you can get those orders out the door and how fast you can grow. With this being the case, it is so crucial that businesses get this right, ensuring they have the tools that tell them exactly what products they need to buy and to where suppliers need to ship them.
If like ASOS you are importing goods from overseas, how long does it take you to get hold of that stock? There are intelligent stock control systems now that will consider these supplier lead times, and factor this in when forecasting your stock needs. This helps to ensure that you don’t find yourself short of supply, especially during peak seasons.
However, ASOS’ issues also highlight another important aspect of accurate stock control – the link to sales channels. Stock shortages can often be caused by integration issues, with those using multiple software solutions for sales and purchasing finding that data is simply not shared seamlessly enough between the two departments. This leads to more sales opportunities being missed and warehouses being left filled with unsold stock.
Therefore, businesses need to find a purchasing system that can draw on current stock levels and sales demand, as well as historical usage data for more accurate forecasting. Through using this wealth of information, your business can gain better control over the stock that you require in each location. This will not only help you to avoid stock shortage issues like those experienced by ASOS, but also enable you to capitalise on any potential sales opportunities as they are presented.
Undertaking a new software implementation is a daunting task for any business, and the fact a company the size of ASOS have hit obstacles along the way shows that even companies with considerable resource can suffer without the support of the right people. For projects such as this, you need experts on the job, people who have experience in implementing new systems and know the best way to go about it.
Unsurprisingly, investors were quick to point the blame at ASOS management considering the news of their falling profitability, concluding they didn’t have the right senior leaders to undertake the project. However, if they had utilised software experts during the implementation, they might have been able to predict and prevent some of the bigger issues from happening. This brings to light the final lesson from ASOS’ recent troubles – using the knowledge and experience of your software supplier.
When choosing a software solution, your business is effectively choosing a long-term strategic partner for your business. So, as well as determining whether the software itself will be able to support your operations going forward, you also need to look at the company behind the software. Do they have the staff resources to help you through the implementation? Can they advise on best practice so that you can experience more benefits from the software? Will their software and services evolve as your business does? These are the questions you should be asking.
Through finding the right solutions partner for your business and utilising their knowledge and expertise, management can offload the stress of implementation and instead remain focussed on running day-to-day operations. As you grow, you will also have support if any further improvements need to be made down the line.
So, in conclusion, there is a lot to be gained from ASOS’ experience implementing a new system. Firstly, businesses do need to begin automating their processes if they haven’t already, however this shouldn’t come at the expense of lost sales and downward profitability. Therefore, to make sure any transition from manual to automated processes runs smoothly, businesses should ensure they have the right stock control software for the job, have minimised the risks of any switch to a new system and have the support of experts when needed. By taking these lessons onboard and not making the same mistakes as ASOS, businesses can start off on the right foot when they begin their journey towards growth.
If you are looking to improve your existing processes and are interested in seeing how our OrderWise software can help, give us a call on 01522 704083.
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