ASOS spends on IT and logistics as e-commerce booms

LONDON Wed Oct 23, 2013 8:35am EDT

LONDON (Reuters) - The British-based online fashion retailer ASOS (ASOS.L) is stepping up investment in high-tech warehouses to speed deliveries and cut costs as e-commerce expands at a breakneck pace.

Online sales of clothes and shoes have exploded in recent years to become the most popular e-commerce category in most of Europe, with market research firm Mintel predicting the market will grow 14 percent in 2013 to about 38 billion euros ($52 billion).

ASOS, the big success story in British retailing in recent years with its fast-changing fashions snapped up by Internet-savvy twenty-somethings, said it would increase investment to about 110 million pounds ($90 million) over two years as it reported a 23 percent rise in full-year profit.

It invested 33 million pounds in the 2012-13 year.

ASOS said it would expand its huge distribution centre in northern England and build a new northern European hub to service France, Germany and Scandinavia.

ASOS's sales to the European Union jumped 51 percent in the year to August 31, while worldwide sales, announced last month, rose 40 percent to 754 million pounds. Its Berlin-based peer Zalando on Wednesday reported sales growth of 72 percent in its first six months, to 809 million euros ($1.11 billion).

The world's two biggest fashion retailers, Zara-owner Inditex (ITX.MC) and Hennes & Mauritz (HMb.ST), have been slow to embrace e-commerce, but are now expanding fast, with Zara recently launching in Russia and H&M in the United States.

Like Zalando, ASOS has grabbed market share by offering free deliveries and returns, requiring maximum processing efficiency.

CUTTING COSTS, SPEEDING ORDERS

ASOS said its medium-term goal was to cut the labor cost per unit handled in warehouses to 50 pence from 63 pence in 2013 and 71 pence in 2012, while speeding up delivery times.

"The ultimate goal is midnight cut-off for next-day delivery to 98 percent of the UK," said ASOS founder and chief executive Nick Robertson.

Shares in ASOS, whose celebrity fans include U.S. First Lady Michelle Obama and pop singer Rita Ora, have rocketed since floating in 2001 and have more than doubled over the past year, giving it a market capitalization of about 4.5 billion pounds.

But its shares were down 2.3 percent at 5,289 pence at 1205 GMT after Robertson cautioned that the extra investment would slightly dent profit margins.

ASOS is to spend 4-6 million pounds in each of the next two years in China, where it will launch a local language website in the next few weeks.

"Clearly we're excited about the potential - but that's a 10-, 20-year potential, not the next six months," the CEO said.

Last month, ASOS said it was on track to hit its 1 billion pounds annual sales target a year ahead of schedule in the 2013-14 financial year. It said on Wednesday that this year had started well and targets were likely to be reset early in 2014.

"This isn't about macroeconomics, this isn't about people having more money in their pockets; it's about the fundamental structural shift in the way that twenty-something-year-old customers are now shopping," said Robertson.

(Reporting by James Davey; Editing by Kevin Liffey)

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