ASOS Strategic Fashion Management PDF

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Strategic Fashion Management Assignment : Individual Coursework How can Mass Market Companies be Competitive with E-commerce as their Only Point of Sale? This is a case study-based approach focusing on ASOS the online retailer. Student Name: Shivani Poonja Student ID: W1468748 Course: Fashion Business Management (MA) Module Code: 7FAMN007W Word Count: 4,450 Date of Submission: Thursday 28th November 2019 Table o

Introduction 1.Literature Review 1.1 Overview of Fashion Industry 1.1.1 The Changes in Mass Market Fashion 1.1.2 Rise of Technology and E-commerce Usage 1.1.3 Technologies Influence on Consumer Demands 1.2 Analysis of Physical and E-Commerce Stores 2. Macro-Environmental Analysis of The Mass Market 2.1 PESTLE Analysis 2.2 Porters Five Forces Model 3. ASOS Internal Analysis 3.1 How has ASOS Created and Developed 3.2 ASOS Financial Position 3.3 Value Chain Analysis 4. Comparative Market Analysis 4.1 Comparative Strategy Comparison 4.2 Competitors Positioning 4.3 Analysis of Key Competitors 5. Conclusions and Recommendation 6. References 7. Appendices Assignment Proposal 3 4-74-644-55-67 8 - 13 8 - 10 11 - 13 14 - 18 14 14 - 17 18 19 - 25 19 - 23 23 - 24 24 - 25 26 27 - 36 37

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Introduction Under the umbrella of fashion there are two main avenues, luxury retailers and mass market retailers. This report will be focused heavily on the mass market, which are retailers who are average in terms of price and product (Kenton, 2019). These retailers have a greater focus on high street shoppers and in more recent years, they are changing their business models to suit consumer needs of faster fashion. The fast fashion business model has higher traffic, higher volumes and lower costs, drawing in shopper who are looking for trendy clothes at cheap prices (Segura, 2019). Fashion is a constantly developing and saturated market, and this means that retailers must be adaptable in order to keep competitive. New technology is a driver of their models and enables retailers to meet consumer demands and operate with shorter lead times. Technology has encouraged e-commerce to be a must have for retailers, e-commerce is the transaction of buying and selling online (Cambridge Dictionary, 2019). Companies are heavily investing in innovation and their online portfolios, in order to achieve an omnichannel experience for customers and expand their lifecycles. Omnichannel refers to reaching customers through all possible mediums; apps, e-commerce, social media, referral websites and physical stores (Baker, 2019). The aim of this report is to investigate how mass-market retailers who use only e-commerce, as their point of sales can keep competitive. ASOS will be the case studied to aid reach a cohesive conclusion. The company’s internal structure and their external environment will be assessed through models and financial data. Moreover, it will be looking at their competitors, consumers and indirect factors which can affect ASOS. This report is relevant as it will be conducting a deep analysis of the market and different strategies that can aid e-commerce companies to keep competitive. While there is existing information regarding e-commerce, technology and the retail market, this report will contribute to it and bring all three of these topics together.

1. Literature Review 1.1 Overview of Fashion Industry 1.1.1 The Changes in Mass Market Fashion The fashion industry is a hub of activity for the global economy, with a net worth 3 Trillion Dollars and holding 2% of global GDP (Fashion United, 2019). Over the last decade the industry has developed and adjusted

along-side changes within society (Bhardwaj and Fairhurst, 2010). With the rise of technology and changes in consumer demands, retailers’ have had to alter their strategies accordingly. The past decade has shown a fluctuation in mass market business models. Thanks to stores like Zara and H&M who pioneered the growth of fast fashion, many retailers have amended or created new business models based on the concept of fast fashion (Stein, 2019). However, in recent years sustainability has become a hot topic in the apparel industry (Caniato et al., 2011). Choi and Li (2015), claim that sustainability and transparency, in the whole supply chain is now valued by consumers, having therefore caused another shift in retailers’ strategies (Wightman-Stone, 2019). Many companies such as ASOS, and H&M have joined a zero net carbon initiative to be reached by 2050 (Cheng, 2019).

1.1.2 Rise of Technology and E-commerce Usage The industry is affected by more than just fashion, in 2010 Harold Tillman stated that fashion indirectly contributes to £16 billion of the UK economy (The British Fashion Council, 2010). Technology is heavily now integrated with fashion (Yuan, Chen and Luzzi, 2018), Arribas and Alfaro (2018), explain how advanced technology has changed the way fashion is conducted. One of technologies greatest impact upon the industry is the rise of ecommerce. With online platforms and mobile apps, consumers are now able to browse and purchase clothing from anywhere at a faster rate (Selvaraju and Karthikeyan, 2016). Additionally, integrated business models now allow for omnichannel retailing (Brynjolfsson, Jeffery Hu and Rahman, 2013). From 2014, e-commerce usage has risen from 1.36 billion to 3.53 billion in 2019. This number is estimates to double by 2023 (Clement, 2019) (Appendix 1). The integration of online retailing has resulted in companies revaluating their business models to accommodate the changing market (Wertz, 2018). This allows companies such as ASOS and Missguided to have a competitive advantage as their models are built upon e-commerce systems. The development of social media sites, digital marketing and the use of cookies, have all been adopted into business models in order to extend their lifecycles and keep competitive (Manzoor, 2016). Retailers are now using artificial intelligence and data analytics to find patterns and increase the consumer experiences (Alvin-Adegeest, 2019). According to Clement (2019) the number of social media users since 2010 has grown, from 0.97 billion to 2.82 billion in 2019. This number is predicted to rise to 3 billion by 2021 (Appendix Two). Today the most successful businesses are those who have invested into their online platforms (Hajli, 2014). This allows retailer to advertise to their market

with ease, increasing communication and through hyperlinks to their store, they can encourage sales (Chae and Ko, 2016). It allows them to receive feedback and improve upon their customer service, potentially increasing brand loyalty (Laroche et al., 2012). Missguided have built their company using social media to promote themselves, in 2018 a customer tweeted a request for a nice top button and they responded directly. These companies use a cohesive approach, to interact with their market, becoming adaptable and agile (Hastings, 2019).

1.1.3 Technologies Influence on Consumer Demands The past decade has shown a fluctuation in mass market business models, this coupled with social media has led to different expectations from consumers (Gabrielli, Baghi and Codeluppi, 2013). Thanks to technology and companies like Zara, there is a rise of impatience. People want fasters deliveries, rapidly changing products and low prices (Martin Roll, 2019). Online stores allow for consumers to receive items even if they are unavailable in stores, which hold a lesser capacity than warehouses (Hufford, 2017). According to Mckinsey, (n.d.) consumers attach a value to same day delivery. Amazon is a prime example of an online only store which contribute to consumer expectations of quick service (Mckinsey, n.d.). Social media is another driver of changing demands, consumers are able to see the newest clothes on runways in real time (Gabale and Subramanian, 2018). Online influencers are a growing phenomenon, figures like the Kardashian-Jenner clan have 150 million followers on Instagram and consumer want to wear what they wear (Kardashian, 2019). This brings a demand to retailers to have similar looking garments immediately (Gabale and Subramanian, 2018). ASOS can design, create and have items on the shop floor in 4 weeks. Bringing out new products weekly to meet consumers unrealistic demands (Hanbury, 2019). However, technological advances also allow movement groups and activist to promote sustainability. This has encouraged consumers to be more conscious of where their clothes come from and transparency in companies (Ted Talk, 2018).

Diagram 1 (ASOS PLC, 2019) Instagram is one of the most popular platforms of ASOS, this could be attributed to the fact customer can see the clothes and get inspiration of what they want to buy. Despite Instagram’s presence reducing in the last year, their overall online penetration is estimated to rise from 24% in 2018 to 32% by 2023 (ASOS PLC, 2019).

1.2 Analysis of the Physical and E-Commerce Stores With a higher rate of customers moving to e-commerce, research states that footfall in physical stores, has decreased 2.8% across the UK (Savillis Commercial Research, 2018). However, Savillis Commercial Research (2018) also argue that while online sales are dominating the market, physical stores are keys for omnichannel interaction, which will aid retailers to thrive in the future. The past few years has shown UK retailers in trouble with 37 companies failing and 1663 stores affected in 2019 (Centre for Retail Research, 2019). Forever 21 is a key example of how online stores have an advantage over physical stores. Despite the changes to the market, they continued to open new store and invest less in their online presence. This led to the downfall of a multi-million-dollar company (Maheshwari, 2019). Hills (2018) argue that stores are closing because of the rising cost of rent. Having only an online store, allow for companies to save cost on overheads such as rent and staff. This enables them to have a higher cash flow to invest back into themselves (Allman, 2019). Online stores have an advantage of managing their stock as they can monitor items and real time consumer interests. ASOS are able to do this through tracking their consumers through advanced integrated technology and analytics (Donohue, 2017).

2. Macro-Environmental Analysis of The Mass Market 2.1 PESTEL analysis (Johnson et al., 2017) A PESTEL analysis is used to evaluate external factors, which can affect ASOS and mass market companies. Below is a diagram depicting some of the most current factors.

Political • Brexit & UK Election • USA vs Globalisation • China’s Autocritiques’ • Hong Kong Protests

Economical • High Street Retailers Closing • Change in Exchange Rates • Recession • Importation Tax Increase

Social • Activists for Sustainability • Social Media Encourages Trends and Fast Fashion • Seasonal Changes • People Want Experiences • Transparency

Technological • New Development in Technology - AI Technology - Rise of 3D Printing • Faster Production Methods • Electric Transportation

Ecological • Countries GO Carbon Neutral • Climate Change • Companies are Using Environmentally friendly Materials

Legal • Rise of Counterfeiting • Hacking • China’s Red Tape • Paris Climate Change Agreement

Political: Brexit and the upcoming UK election have caused uncertainty for companies. Retailers are suffering from weaker sales and they are not able to predict how this will affect their global deliveries (Angelovska, 2019). ASOS is based in the UK, which was once a part of the EU. The EU is a single market economy, which means that there is free movement of goods, people and money. ASOS deliver to over 200 countries and can be affected by the changes in policies (ASOS, 2019). The USA has issues with importing goods from foreign countries, resulting in taxes rising. They also have stated they want to stop imports from Turkey and have already tried to add 50% tax on their steel (Breuninger, 2019). Turkey has numerous factories for production, as it has good accessibility, materials and manpower equating to quicker turnaround time for retailers.

Entering the Chinese market though they have a large population is difficult in this political climate, due to the protest and red tape (BBC News, 2019). ASOS have tried and failed with this market in the past because of differences in the country’s operations, costing them £10 million (Butler, 2016).

Economic: UK potentially leaving the EU could result in high taxes for ASOS when shipping goods for distribution. Additionally, it may mean they need to raise prices, as their cash flow is in pounds and Brexit caused repercussions on the economy, leading to the pound becoming less valuable. It has also caused consumer spending to decrease, sales fell by 0.8% due to the uncertain surrounding Brexits, and the decrease of UK citizens disposable income (Reuters, 2019).

Social: China has the largest population in the world, equating to a billion, this provide retailers the opportunity to brake in a giant market. However, their population is beginning to decline, shirking the future market (McKirdy, 2019). Activist are more pronounce than ever, encouraging sustainability and transparency in consumers (Ted Talk, 2018). Social media is integrated into lives and it encourages trends, which the fashion industry must react to (Wilberg, 2018) (Gabale and Subramanian, 2018). People are now favouring experiences, effecting spending on clothes (Morgan, 2019). Among the experiences craved is traveling to different countries, designers are now having difficulties stocking their collections due to the differing seasonal requirements (Cochrane, 2013).

Technological: Technological advancements such a 3D printing and AI technology have positively affected the fashion industry though sustainable clothing and Just in Time management. This mean there is less waste and ASOS have more cash flow because they would not have their money tied in stock. Additionally, ASOS now use electric vans to transport products (ASOS, PLC). ASOS have used advanced technology to reduce their return rate and in extension their carbo footprint from deliveries. They use systems to track items in customers saved section, and they can also do this through digital marketing and promoting as pop ups on social media. AI Technology enables their ‘Fit assist’ and Klarna which ASOS use, enabling people to find the right size, try before they buy, encouraging sales (Donohue, 2017) (ASOS PLC 2019).

Ecological: When looking at environmental factors, they can be linked with the social. Due to climate change, fashions excessive pollution and cheap labour, there is a rise in demand for sustainable clothes (United Nations, 2018). It is cause and effect, climate changes causes demand for sustainable clothes, which equals to higher production costs and raising prices of goods sold. In accordance to ASOS PLC’s 2019 report, they create sustainability through recycled clothing, using initiative cotton and having less waste. Legal: With the rise of technological integration into fashion systems, there is a treat of hacking, counterfeiting and legal information being spread (Gonzalez-Rodriguez, 2018). The Paris Agreement is a legal contract which coincides with ecological strategies to lowering waste (United Nations, 2015) ASOS is among the retailers who have signed the agreement. 2.2 PORTERS FIVE FORCES (Johnson et al., 2017) This is a model which helps shows the power of different sectors within the industry and how they can be competitive.

Rivalry Among Existing Competitors

Rivalry Between Existing Competitors – High

In the mass market, competition and rivalry is extremely high. ASOS have to compete against physical stores who have online platforms, and other online retailers. New Look & H&M are competitors with stores while, Missguided and Boohoo are online only competitors. Retailers fight each other to be on top of the same trends and aiming for speed to store. Companies want to differentiate themselves and have a unique selling point. This can be done through a variety of strategies. ASOS are known for their excellent delivery policies; free deliveries and return on orders over £25.00 and item often arrive within days. Moreover, they can differentiate themselves with their marketplace, selling a range of products from multiple suppliers. Customers are able to buy brands such as Mac, who have high delivery prices on their own sites, for a lower shipping cost and also buy matching outfits at the same time.

Treat of New Entrants – Low/Medium The threat of new entrance is low, while the mass market sector is saturated it is now fairly easy for companies to set up online sites. However, it is difficult for online companies to have global distribution channels. There is also the issue of suppliers; most manufactures request minimum number of orders, normally over 500 garments. This is difficult for smaller firms would not need high volumes. Additionally, they would need to think of a unique selling point to differentiate them against the rest of the market.

Threat of Substitutions – High Each of these brands have the same audience who follow the same trends and consumer demands, and therefore create similar styled products. This summer Zara created a spotted dress which sold so well they continued to produce the same and similar product. It done so well that all other highstreets brands created similar garments with polka dots (Davis, 2019). In this regard, ASOS need to be quick and proactive, to gain first mover advantage leading to a competitive advantage.

The Bargaining Power of Suppliers – Low/Medium In mass market industries, communication and strong relationship with suppliers is essential for the business to thrive. Many retails have

integrated supply chains, Zara for one is a very vertically integrate supply chain, they own the different sectors to achieve efficiency. The materials of the mass market products are not as rare and expensive as the luxury industry. Depending on where the supplier is would depend on the power, for example ASOS use factories both abroad and in London to produce their garments. The London factories provide the products quicker than if made abroad, allowing the retailers to have more power because they provide a faster service. Factories abroad have lesser bargaining power as they have lesser protection laws and lower minimum wages. Regardless of where the factory is, having a brand like ASOS in their client list, is important to their business.

The Bargaining Power of Buyers - High Consumers have over the last few years gained more bargaining power with the rise of substitutes. Technology allows for e-commerce which is an excellent way for consumers to choose items from the mass amounts of retailers available, while in the comfort of their own home. This gives them power, as they can choose cheaper or trendier options. If a company were to change their prices or quality the buyers can easily choose a different product from a different company. Therefore, retailers will want to keep prices and products competitive because the buyers’ power is high.

3. ASOS Internal Analysis 3.1 ASOS’s Development ‘Achieving growth while adding social value and minimising environmental impacts’ is ASOS main aim (ASOS PLC, 2019). ASOS was created in 2000, at this time online shopping was not a widely used resource. They had low online competition and low market saturation, but they also had low consumer interest. In today’s society people are using e-commerce to purchase their goods and many retailers are in a rush to improve their platforms. ASOS having developed their online presence from the creation, have one of the best for consumer experience, and usability.

3.2 ASOS Financial Position

(ASOS PLC, 15), (ASOS PLC, 16), (ASOS PLC, 17), (ASOS PLC,18), (ASOS PLC,19) Diagram 3:

(ASOS PLC, 15), (ASOS PLC, 16),(ASOS PLC, 17), (ASOS PLC,18), (ASOS PLC,19) Diagram 2 & 3 show the changes in retail sales (in millions), by area...