Originally launched as As Seen On Screen, Asos should perhaps now be known as A Scourge Of Shops. The Aim-quoted online retailer is enjoying sales growth that its high-street rivals could not even dream of.
This week, the company said retail sales were up 30per cent in the four months to June, compared with a year earlier. Customer numbers hit 12 million – a quarter higher than in 2015.
Twentysomethings may not be saving up for a deposit on a house or paying into their pension, but they sure seem to be shopping at Asos.
The company’s recent performance is in stark contrast to bricks-and-mortar rivals. Primark’s like-for-like sales growth has averaged 4.6 per cent over the past 15 years, according to Morgan Stanley. But it slowed last year, then fell 0.7 per cent in the first half of this year.
The chain, which counts on shifting large volumes of clothes at low prices, does not sell online and has been hit by fewer people shopping on the high street.
Asos sells only online – and is increasingly tailoring its business to mobile, which brings in two-thirds of site visits.
Nick Beighton, its chief executive, expects about 40 per cent of all clothing sales to eventually be done online – compared with Barclays' estimate of about 15 per cent now. If that happens – and Asos keeps a 10 per cent share in the UK and takes 5 per cent in the US and EU – Mr Beighton says sales would rise sevenfold.
While Marks and Spencer is busy asking its 70-year-old shareholders what colour cardigan to feature, Asos is working with social-media groups to devise more savvy ways of getting customers what they want.
The company has 85,000 products online and is building the technology to handle 30 orders per second. Users can upload photos of themselves under the hashtag #AsSeenOnMe, which Asos shares with other customers – along with easy click-throughs to buy the items. It is the kind of thing that might make the M&S cardigan guru’s head explode.
Asos, which floated at 20p per share in 2001, is in a good position to grow. Despite having a market capitalisation of £3.5 billion, a similar size to several FTSE 100 groups, it has stayed on the junior market.
The company says it has never needed to access the debt capital markets – or external equity markets. It has a decent amount of cash and says it plans to pump profits back into the business, to lower prices and invest in technology.
Analysts say Asos is a potential Brexit winner, as it buys 85 per cent of its goods in sterling but makes more than half of its sales overseas. A strong pound contributed to a string of profits warnings at the group in 2014 and the recent weakening is expected to do the opposite.
By contrast, rating agency Moody's said this week that, should the pound stay at about its current level, it would put pressure on margins of chains including Next, M&S and New Look that pay dollars to Asian suppliers for the bulk of their goods but sell mainly in pounds.
Already Asos’s US sales are up more than 50 per cent compared with last year. Société Générale estimates that the group has a market share of just 0.3 per cent in the US – giving it plenty of room to expand.
There are risks ahead: the group’s gross margin fell 180 basis points in the four months to June, mainly because of price cuts that are set to continue.
The group would also suffer if its millennial customers had less money to spend either because of a UK recession or rising inflation.
So far, investors do not seem concerned. The company's shares have risen about 15 per cent in a year, while Next is down 30 per cent, and M&S has fallen almost 40 per cent. Primark owner Associated British Foods is down more than 10 per cent over the same period.
Asos has also set ambitious future growth targets that could translate to revenues roughly tripling in the next four to five years, according to Barclays. Even if there are some bumps along the way, that is expected to boost the stock further.
While the company's twentysomething followers snap up shift dresses and espadrilles, believers in Mr Beighton may want to stock up on something else: A Stash Of Shares. Copyright The Financial Times Limited 2016