marketing assignment

UK retailer ASOS cuts prices in Australia as weaker dollar favours locals

Published 18 September 2014 10:18

Sue Mitchell

Business Review Weekly+font-fontprint

UK online retailer ASOS, which was once flying four jumbos of clothing to

Australia every week, plans to cut prices in Australia and offer free returns

to counter a downturn in sales triggered by the weaker dollar.

Australia was once ASOS’s biggest market outside the UK, prompting the

online retail pioneer to launch a dedicated Australian website and set up an

office in Sydney.

However, the Australian dollar has fallen 5.3 per cent against the pound

over the past 12 months and ASOS’s prices have risen about 20 per cent,

making its private label and branded clothing less competitive against

domestic online retailers such as Dotti, Portmans, Sportsgirl and Myer.

ASOS shares, which have fallen more than 60 per cent in six months, lost

another 10 per cent on Tuesday after the former darling of the UK dotcom

scene revealed that international sales fell 5 per cent in the past three

months, dragged down mainly by weaker sales in Australia.

The company issued its third profit downgrade this year, warning that

profits in 2015 were likely to be flat at about £45 million ($80 million), well

below market forecasts of about £62 million, because it would reinvest

profits into reducing prices and improving service.

“In the new financial year we’ll make significant investments in our

international pricing and proposition, as well as in our logistical

infrastructure and technology platform,” chief executive Nick Robertson

said.

“As a result, we expect profit before tax for the year to August 31, 2015 to be

at a similar level to 2013-14,” he said.

While ASOS’s Australian sales have gone backwards, online sales at

Premier Investments’ Dotti and Portmans brands rose 61 per cent and

39 per cent respectively in the past 12 months and Myer’s online sales rose

50 per cent.

Fashionistas prefer Australian retailers

Premier Retail chief executive Mark McInnes said Australian fashionistas

still love d buying online but were happier buying from domestic rather

than overseas retailers.

“One of the things people forget about ASOS is that it still takes five to

seven days to deliver products and we’re delivering [orders] the next day,”

he said. “If they cut prices it will have an impact on their profit.”

Premier Investments chairman Solomon Lew said consumers were not only

facing a weaker dollar but bank fees on foreign currency transactions.

“They’re getting an exchange rate closer to US87¢ by the time banks charge

commission,” he said.

ASOS’s troubles are likely to be welcomed by local retailers, but price

reductions could increase pressure on margins at a time when the weaker

dollar is pushing up sourcing costs, especially for vertically integrated

retailers.Deutsche Bank believes ASOS’s Australian sales are worth about

$200 million a year but agrees it is losing market share.

“ASOS’s planned heavy price investment could improve sales which would

not be helpful for domestic retailers but it has a large Australian business

which it needs to protect,” Deutsche Bank analyst Michael Simotas said.

“On a constant currency basis the quantum of $A spent by Australians at

ASOS hasn’t reduced as much as the headline numbers suggest but it is

becoming clear that ASOS’s value proposition to Australians has been

diluted by the [currency] moves,” he said.

“We expect the trend would be similar across all international retailers

selling into the Australian market.”