Why Asos is writing off inventory worth £100m

Fashion retailer Asos has posted a loss in the 12 months to 31 August due to inefficient supply chains and inventory management.

Announcing third quarter results, Asos said it was implementing cost-cutting and stock reduction measures to cut excess inventories and lower operating losses.

The UK brand, which also owns Topshop and Topman, reported earnings for the year leading up to 31 August of £44.1m, down on £206.6m for the same period last year. 

CEO José Antonio Ramos Calamonte, appointed four months ago, said the company would write off more than £100m of stock (rising to £130m for the full year 2023), cut costs, and improve inventory management.

It said it would do this by near-sourcing products directly, reducing warehouse inventory, and introducing off-site routes for stock clearance to sell clothes earlier in their lifecycles.

Calamonte added: “In recent years, the quest for growth has resulted in Asos becoming excessively capital intensive, too complex and overstretched globally, which has resulted in a lack of meaningful growth and scale in its key international markets of the US, France and Germany. While the international business makes a positive contribution and there are pockets of strength in key territories, we are disappointed in our performance, given the extent of our historical capital investment, particularly in the US. 

“This investment in a large, multi-region supply chain network has increased cost and complexity, not fully offset by delivery incomes… We are taking firm action now to accelerate the changes needed to address these issues and will take the opportunity to develop a stronger organisation, built on four key principles: simplicity; speed to market; operational excellence; and flexibility and resilience.”

Calamonte also emphasised the company had become too reliant on marking down products to make sales.

The actions the company was taking included:

1. Renewed commercial model

To become more competitive and tighten stock operations, the company said it would shorten its buying cycle and increase its speed to market, offering more relevant products. Additionally, it aimed to increase stock flexibility and reduce stock held in fulfilment centres, ensuring more near-sourcing. Further, it intended to change its stock clearance methods, introducing off-site routes to sell products earlier in their lifecycles and reduce the need for markdowns. 

2. Stronger “order economics”

To eliminate efficiencies, Asos said it would focus efforts on key markets, optimise its cost base, improve supply chain efficiencies, and eliminate excess costs through increased controls.

3. Robust balance sheet

The retailer said its future investments would match capacity requirements in order to become more efficient. Alongside this it intended to invest in technology and data to support the customer experience.

4. Reinforced leadership team and refreshed culture

To encourage a culture of innovation and creativity, the company would simplify the decision-making process while making strategy senior leadership hires.

The issues Asos faced included a more challenging 2022 second half than expected, as inflation pressured consumers. It also saw an increase in return rates, contributing to its excess stock issue. This was exacerbated by its withdrawal from Russia, resulting in higher inventory levels across all its fulfilment centres. 

Costs were also impacted by inflationary pressures across labour, freight and delivery. Stock purchased in 2021 arrived this year due to supply chain delays, and stock ordered for 2023 arrived earlier than expected. The written-off stock was primarily marked down or aged.

Asos’s issues with excess stock and inventory management follow similar problems experienced by Nike, which has to clear $9.7bn in excess inventory following supply chain problems. Both companies fell victim to a surprise fall in shipping rates and the sudden absence of delays, which brought pre-purchased stock into inventories much sooner than expected.

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