Can ASOS Rise From the Ashes? The Art of Recovering from a Profit Warning

As ASOS issues its second profit warning in seven months, the online fashion retailer whose issues are said to come from warehouse-related confusion, non-functioning Eurolab software and troubled third-party brands, is not giving up the fight against these operational challenges just yet.

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Tony Hughes, CEO at sales and negotiation experts, Huthwaite International, analyses how ASOS has ended up in this situation, and whether the company can negotiate its way back to profit.

Profit warnings and administrations have become increasingly commonplace over the years on the Great British high street, but with crossover now into the e-commerce sphere – once blamed for the collapse in physical shops – questions are being asked into what can be done to save retail in the UK.

It’s natural for investors and shareholders to want fast answers, and this often results in a knee jerk reaction to focus on cost cutting, redundancies and short-term sales as preferred go-to solutions.  While a fast turnaround is desirable, it’s vital that retailers, whether online or on the high street, consider other opportunities that can stabilise cash flow and improve their profitability. One such area – albeit often overlooked – is strategic negotiation.

Why is negotiation so key for retailers?

An organisation-wide negotiation strategy, if delivered properly, can very quickly improve cash flow, reduce overheads and ultimately soften expenses to protect profit, for even the most troubled of companies. Not only that, but an effective negotiation strategy can help a business fight to see another day.

Huthwaite’s own research, conducted in conjunction with YouGov, into the impact of an effective negotiation strategy revealed that six-out-of-ten of the most effective margin-maximising business strategies – such as rent, supplier contracts or procurement, require effective negotiation skills. Put simply, it is not enough to focus on innovation, sales and growth strategies alone. Businesses must also work hard to ensure that every pound really does count.

Should ASOS have been better prepared?

With profit warnings traditionally hitting high street brands and fashion-focused e-commerce operators existing in something of a charmed bubble, ASOS could be forgiven for not learning from the mistakes of these retailers. However, there are key learnings any operator – high street or online – can take from historic collapses.

First and foremost, beware the downward spiral. Uncertain economic climates and the aforementioned knee-jerk reactions to cut costs, and in the wrong places, can be dangerous. From a sales perspective, the need to think innovatively and seriously considering the needs of the demographic they appeal to is key. In the case of ASOS, it’s ensuring that their primary consumer brought up on ‘fast fashion’, but now more aware and concerned about the environmental cost, is catered to – keeping up with changing audiences is paramount.

The issue with these rather public solutions is that they can be judged, viewed and criticised by the general consumer, stakeholders and investors alike. This in itself can impact on sales. Overly discounting can impact the perceived value of what you’re selling and your stability in the market, making the change to standard pricing almost impossible, and negotiating new supplier or partner deals less favourable because of the increased perceived risk. Meanwhile staff redundancies – or even rumours of them – cause nervousness amongst investors and staff alike.

So, can ASOS hope to head back into the black?

If businesses fail to embrace the benefits effective negotiation can offer, the likelihood of reversing the effects on any retailer is bleak. By introducing an effective company-wide systematic negotiation strategy, businesses can save huge amounts of capital, not to mention improve margin. Huthwaite’s research shows that businesses with a systematic approach to sales and negotiation experience 42.7% greater growth to the bottom line than those without.

This fact alone highlights the importance of applying effective negotiation techniques to drive profitability across an organisation. While not necessarily a panacea, negotiation can bring short-term profit, and long-term growth and stability if effectively employed, yet so often it remains overlooked.

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