asos-business-model

How Does ASOS Make Money? The ASOS Business Model In A Nutshell

ASOS is a British online fashion retailer founded in 2000 by Nick Robertson, Andrew Regan, Quentin Griffiths, and Deborah Thorpe. As an online fashion retailer, ASOS makes money by purchasing clothes from wholesalers and then selling them for a profit. This includes the sale of private label or own-brand products. ASOS further expanded on the fast fashion business model to create an ultra-fast fashion model driven by short sales cycles and online mobile e-commerce as main drivers.

Background

ASOS is a British online fashion retailer founded in 2000 by Nick Robertson, Andrew Regan, Quentin Griffiths, and Deborah Thorpe.

ASOS was originally called As Seen on Screen and sold items used by celebrities in film and television. This included a diverse range of products, including a mortar and pestle used by celebrity chef Jamie Oliver and a wallet that appeared in the movie Pulp Fiction.

In 2002, the company became ASOS and was floated on the London Stock Exchange. While it continued to promote fashion items worn by celebrities, Robertson noted that own-brand fashion offered higher profit margins. Two years later, the first ASOS-brand womenswear was launched and the company made its first profit after endorsements from celebrities such as Rihanna and Michelle Obama. Beauty products, jewelry, accessories, and own-brand menswear soon followed.

In 2010, ASOS launched online shopping for consumers in the USA, France, and Germany.  The following year, it opened its first international office in Sydney, Australia, and then another in New York City.

Today, ASOS has an active user base of approximately 24.5 million with revenue soaring to nearly £2 billion in the 6 months to February 2021.

Understanding the Ultra Fashion Business Model

The Ultra Fashion business model is an evolution of fast fashion with a strong online twist.

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Fash fashion has been a phenomenon that became popular in the late 1990s, early 2000s, as players like Zara and H&M took over the fashion industry by leveraging on shorter and shorter design-manufacturing-distribution cycles. Reducing these cycles from months to a few weeks. With just-in-time logistics, flagship stores in iconic places in the largest cities in the world, these brands offered cheap, fashionable clothes and a wide variety of designs.

Zara had mastered this model. Its strength relied on:

  • Quickly replicating designs: Zara initially didn’t innovate in terms of design. Instead, it copied fashion trends. Therefore, it fast followed the existing trends created by high-fashion players.
  • Mass manufacturing them: Zara also had mastered quickly and cheaply manufacturing its clothes to achieve extreme speed. Where competitors or existing players took six months to turn the design into clothes available at the store, Zara took this to another level, shortening the design-manufacturing cycle to as low as 2-4 weeks.
  • Mass distribution and logistics: Another key element of this strategy was making logistics a core competency of Zara. As these clothes could be easily made available in all its stores. By leveraging a “just-in-time” process, Zara distributed clothes across the stores from its central warehouses (perhaps in Spain), making the clothes available within 48 hours in any of the European stores.
  • Flagship retails: Zara also invested in a marketing/distribution strategy where stores would be located in iconic and central places in the major cities across the globe. This is both a marketing and distribution strategy as the millions of tourists checking Zara’s store every day also could get comforted by the fact of finding Zara anywhere they were going (not that dissimilar to finding a MacDonald’s restaurant anywhere in the world). And this strategy of flagship stores also worked as a distribution strategy as its clothes could be easily made available to millions of consumers each day.
  • High turnover: Another key element of Zara’s strategy was the high turnover of clothes. In short, each week, fashion shoppers could find different styles of clothes, thus creating a sort of addicting shopping mechanism, where you could go shopping with more and more frequency.

As the 2010s came, more and more shoppers turned to online retail. This brought to a further evolution where online players, or at least those able to leverage their online presence, could quickly gather the feedback of users, by further reducing the time from design to manufacturing/distribution.

Therefore, ultra-fast fashion is a further evolution of fast fashion. How did it evolve? By simply relying on online stores, rather than building a physical presence. For instance, in the case of ASOS all its efforts are invested in further shortening the design-to-sales cycles.

As ASOS highlights on its website:

We’re all about online at ASOS so you won’t find us in your local mall. We’ve got hundreds of brands and thousands of products that just wouldn’t fit into a store.

Instead we focus our efforts on bringing you thousands of new products each week and the latest fashion news and tips via our Women’s and Men’s homepages.

You don’t have to worry about opening and closing times or trying to find a parking spot – just log on from the comfort of your own home and start shopping. We’ve also got a mobile site and app so you can shop while on the go.

To better understand this transition from fast fashion toward ultra-fast fashion, we need to give a glance at ASOS’ financials.

The trend toward casual clothes has been accelerated by the pandemic and that has favoured ASOS. In fact, from a quick glance at its financials it’s possible to see how the company has further accelerated its sales and global customers acquisition:

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Data Source: ASOS Financial Statements

When looking at the financials of ASOS, it’s interesting to note a few things:

  • The company has a high marginality, with most of its sales coming from retail. This is thanks to the fact that ASOS is online-only. Thus, it uses its cash to invest in shortening the design-sales cycles, rather than operating massive stores, as it has been in the past for fast fashion retails like Zara or H&M.
  • Among its key metrics there are the total visits, conversions, and mobile device visits.
  • As it’s clear from its KPIs, mobile shoppers represent the majority (they grew to 86.3% in 2021).
  • With a strong mobile presence, ASOS has incorporated the social shopping experience into its process thus, managing to increase the average units per basket and the frequency to which mobile shoppers place orders (over 3 orders per year with an average selling price of 23 pounds, and an average basket value of 71 pounds as shoppers usually have three items at least in their baskets).

More Like A Software Company

As the company highlights The ASOS Experience is a continuous process of “beta testing:”

At ASOS, we never settle. We have an always testing, “always in beta” philosophy, constantly improving every day. From free delivery and returns to innovative visual search tech, if it hasn’t been done before, we find a way to do it anyway.

Since ASOS is a online-only player, it’s critical that shoppers can trust it, as such its customer service must be much superior than a service you would expect from a physical retail.

That is why ASOS incentivises free delivery and returns. It also makes it easy to its internal visual search to match and find related items to improve the conversion per purchase.

ASOS Revenue Model

As an online fashion retailer, ASOS makes money by purchasing clothes from wholesalers and then selling them for a profit. This includes the sale of private label or own-brand products.

It also makes money through usage fees, commission fees, and advertising revenue. Let’s take a look at each below.

ASOS Marketplace

Vendors who wish to sell their products on the ASOS Marketplace are charged a monthly usage fee of £20.

For each successful sale, the company also takes a 20% commission.

The exact usage and commission fee will of course vary from country to country.

Private label sales

Private label sales profits are maximized because ASOS designs and then delivers its own brands. This vertical integration allows the company to effectively manage inventory levels and collect 100% of the total amount of each sale.

Advertising revenue

ASOS also earns money by charging third-party businesses to advertise on its platforms. This includes the eCommerce site and ASOS Magazine.

Premier Delivery

Premier Delivery is a service giving members unlimited and free express delivery in metropolitan areas and standard delivery elsewhere. The service also offers free returns and in some cases, no minimum order spend.

Premier Delivery is available in fifteen countries worldwide and is available for a recurring yearly subscription fee. Again, pricing is variable and based on the country of origin.

In Australia, the service is AUD 39 per year. In the United Kingdom, Premier Delivery is worth £9.95 per year.

Key takeaways:

  • ASOS is a British online retailer founded in 2000 by Nick Robertson, Andrew Regan, Quentin Griffiths, and Deborah Thorpe. Originally, ASOS sold items popularised by celebrities in film and television.
  • ASOS drives revenue by charging vendors who wish to sell on its platform a commission fee and monthly usage fee. In the private label space, vertical integration allows the company to control more of the process and maximize profits.
  • ASOS also earns money by offering advertising on its website and in its magazine. Premier Delivery is also offered to consumers who want access to free and unlimited shipping in fifteen countries.

Read Next: Zara, Fast Fashion, Ultra-Fast Fashion, Real-Time Retail.

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Published by

Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which reached over a million business students, executives, and aspiring entrepreneurs in 2020 alone | He is also Head of Business Development for a high-tech startup, which he helped grow at double-digit rate | Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy | Visit The FourWeekMBA BizSchool | Or Get The FourWeekMBA Flagship Book "100+ Business Models"