Strategic growth in the fashion retail industry

an asos.com case study

- BY ANJALI MEHTA

PGDM2/1504

1. In what ways can a company benefit from growth?

ANSWER

1. Improved economies of scale - Increase in the overall volume of business can lead to

significant reductions in costs. These are known as economies of scale. For example, as asos.com

grows, it will require a larger warehouse and distribution operation. As it handles more sales

transactions, it will find it easier to make these operations more efficient.

2. Better Deals- It will also be able to get better deals from its suppliers through ordering goods

and services in larger quantities.

3. Higher profit generation- More will be the sales, so higher will be the profit generated for

the company and shareholders.

4. Attract new customers- Moving to larger premises and increasing the resources and stock

help to reach and attract new customers.

5. Better control over supply chain- If a company grows by vertical integration then it can

either merge with a supplier and/or a retailer that makes the movement of the product along the

supply chain quicker or provide better control over chain of production.

2. What do you feel might be the potential disadvantages of very rapid

growth?

ANSWER

1. Additional costs- A surge in demand generates additional costs. It costs money to fulfil

orders.

For example, a business may require extra staff to process orders or it may need to buy in more

stock or supplies.

2. Cash flow difficulties- A business may have to meet many expenses before it receives the

proceeds from the additional sales, and this can lead to cash flow difficulties.

3. Logistical difficulties- It may run into logistical difficulties and simply lack the short-term

capacity to fulfil orders. It may not be able to make products quickly to meet demand.

4. Customer loss - A business that fails to meet demand risks losing customers. It can take a

long time to repair a damaged reputation.

5. Decrease in quality- The quality of the products and services could drop, causing an increase

in customer complaints.

6. Shortage of staff- Taking on more and more work to generate more income places additional

pressure on existing staff and also it may be difficult to recruit suitable employees for the

company immediately.

3. Describe, using examples, what is meant by horizontal and vertical

integration?

ANSWER

HORIZONTAL INTEGRATION is defined as coming together of two or more companies

which produce the same or similar goods or provide the same/similar services.

Horizontal integration can prove to be a successful strategy when

Your company competes in a growing industry

Your competitors are lacking capabilities, skills or resources that you can provide

The economies of scale would have a significant effect.

EXAMPLES

1. When the super market chain Morrisons acquired the rival Safeway chain in 2004,

it simply created a larger supermarket chain.

2. You Tube, which was taken over by Google primarily because it had a strong and

loyal user base.

VERTICAL INTEGRATION

Vertical integration is the process in which several steps in the production and/or distribution of

a product or service are controlled by a single company or entity, in order to increase that

company’s or entity’s power in the marketplace. This is when it acquires a business at a different

stage in the chain of production. It may acquire businesses that were previously its suppliers or

its customers

EXAMPLES

1. A furniture manufacturer might purchase a chain of furniture stores so that it can sell its

products direct to consumers.

2. A soft drink manufacturer company purchasing a soft drink bottle Manufacturer

Company.

Types of Vertical Integrations:

1. Backward integration –Where in the company tries to own an input product company.

Like a car company owning a company which makes tires.

2. Forward integration – Where the business tries to control the post production areas, namely

the distribution network.

Like a mobile company opening its own Mobile retail chain.

4. What do you feel are the key things that asos.com did in order to achieve

managed and successful organic growth?

ANSWER

This organic growth has been achieved through systematically planned investment in both

people and technology. Following are the key things that asos.com did-

1. Integrated Marketing communication-

Company used a number of channels as follows to drive its growth-

A) PRINT MEDIA- It has increased the asos.com monthly magazine to 116 pages. The

first three issues generated more than £1.5m in sales with an average response rate of

9%. This is higher than the industry average for this type of promotion. A menswear

version of the magazine launched in May 2008, featuring practical style advice,

entertainment news, band interviews and aspirational fashion stories to appeal to

young male consumers.

B) NEWS LETTER- It emails a newsletter twice a week to 1.8 million people who have

chosen to receive it. This significant investment in creative resources has helped to

increase sales from the newsletter by 137% in 2007.

C) PR CAMPAIGN- As part of its PR campaign during 2007 there were 2,236 fashion

editorial pieces about asos.com and its products in the consumer press. This was an

increase of 59% against 2006.

D) CUSTOMER RELATIONSHIP- asos.com takes a “best friend” approach to help

build customer relationships. This means that customers recommend other people.

Customers feel they have a personal relationship with asos.com and therefore want to

share this with their friends. This type of “word-of-mouth” recommendation gives

results above the industry average.

2. Upgradation of technology- asos.com works in a rapidly changing market. It must keep

up with developments in web technology. Customers can now track their orders online.

Shoppers can refine the products they view on asos.com, by choosing colors, sizes and

brands to suit.

3. Content seeding- The company tries to keep its website current by adding articles of

interest to fashion conscious shoppers. This content is refreshed every week to retain the

customers’ attention. The asos.com “Style Blog” is updated daily. This provides visitors

to the website with features such as “Daily Shop”, “Catwalk trends” and the latest fashion

and celebrity news.

4. Pleasurable shopping experience-To enhance the shopping experience, asos.com has

increased the size of product images on the web by 250%. It has also used a “catwalk

feature” for women’s wear. This shows how the products fit and move to give the

customer the best representation.

5. Improving business-asos.com has recognized that the conditions were right for an online

retail business in the fashion retail sector. The company has used the Internet as the

primary growth tool. It has tapped into the rapidly expanding online retailing market.

6. Focusing on customer needs- The clothing ranges also cater for narrow market

segments

For example, for petite women (under 5”3´?). Asos.com offers an extensive and diverse

range of products for men and women.

7. High appeal- asos.com also enters into collaborations with designer labels. This enables

it to provide well-known brands that appeal to its young, fashion-conscious target market.

asos.com stocks over 400 brands including: Diesel, All Saints, Fred Perry, Levis, Adidas,

French Connection.

8. Better customer care- It has a team of 30 customer service advisers. This team responds

by email to all customer enquiries, such as product questions, stock requests or delivery

status. Asos.com has worked hard to reduce the average response time for customer

enquiries from six hours to one hour.