PESTEL And Swot Analysis Of ASOS
The business environment is a combination of all internal and external factors and forces that impact a business to perform or build successful relationships with its customers. Particular attention is drawn to the external environment as it can prove unpredictable and volatile. To deal with these external challenges businesses used different types of framework analysis. One such business is ASOS plc. In examining ASOS plc’s external environment this essay will use two assessments tools: PESTEL analysis follows by the strategic response using operation and marketing, and SWOT analysis. These two framework analyses will help to understand how the external business environment is pivotal to make sound decisions.
ASOS PLC: Overview and Structure of the Company
The company emerged in 2000 and is based in London with over 23 million active users. ASOS is an online global retailer with over 4000 employees and offices in Paris, New York, Berlin. The website sells approximately 85000 products in around 200 markets worldwide. They primarily target young adults. The company is worth £2.3 billion and international sales represent over 60% of the total sales revenue. ASOS’s key differentiation strategy lies in a good shipping policy free shipping and free return. This USP (Unique Selling Point) has been a key to the success of the brand putting him ahead of his competitors.
Henry Mintzberg’s Organisation Structure at ASOS
It is interesting to see how the operation management process and structure at ASOS is linked with Henry Mintzberg’s management theory. Mintzberg has identified five organizational structures one of them is the machine bureaucracy. ASOS’s organizational structure could be identified as machinery bureaucracy the organization matrix is tall, all decisions are centralized the span of management is very narrow, employees have little to zero input and no opportunity to voice their concerns. As a result, ASOS has a high employee turnover rate, people are leaving their job. Many of these characteristics also been mention in Max Weber’s work in the bureaucratic theory.
ASOS PESTEL Analysis
The business environment of any company is always evolving and changing so PESTEL analyzes the environment in which ASOS plc operating by highlighting the factors that have the most impact on its performance.
Brexit has been the main concern, especially in the fashion industry. The UK imports 10 billion worth of apparel from Europe each year. Brexit means firms like ASOS will lose free tariff access to the EU market and will have to follow the WTO rules, and will also have to face logistic and supply chain challenges as cross border control could prove tedious to source raw material from china. Following the UK referendum, the inflation rate rose to cause a depreciation of the exchange rate consequently, the cost of importing goods raised. This inflation has reduced the purchasing power of many consumers. The young adult demographic target by ASOS is most affected by inflation because they have less disposable income to spend on clothing and cosmetic.
The Brexit vote has also caused a shortage of workers. The British fashion industry employs over 10.000 European staff. According to the Office of National Statistics, EU immigration is at its lowest point since 2013 businesses like ASOS who employs over 4000 people from UK and other European Union countries could be affected by this shortage of workers.
National Minimum Wage
The UK government has announced an increase of 6.2% in the National minimum wage from April 2020. All businesses included ASOS will have to increase workers’ earnings in accordance with the law. HMRC’S Director of Business compliance Janet Alexander stated that over six tax years to 2017-2018 they launched 93 investigations over failure to pay minimum wage. ASOS in 2006 has been a subject of complaint for mistreating its workers. Labour MP Owen Smith said ASOS “Is new Sports Direct” as a result the company has invested £3m for new facilities in the warehouse to allow the staff to have a comfort break and has stopped the zero-hours contracts.
The rise in oil price after the attack of the Saudi Arabia hub and instability in the Middle East has been a subject of a lot of distress in the fashion industry. Oil price has remained at almost 25% higher for the past 12 months. The first effect of the oil crisis is an increase on the logistic cost and therefore an impact of any profit margin. This external environment hugely impact global company like ASOS that relies on offshoring. On the other hand oil price rise will impact on the price of fashion industry raw material like polyester which is an oil derivative. Polyester is the main fibre in the fashion industry its production and usage has triple after the cotton crisis in 2011 according to Statista.
Another economic factor is rising debt amount the millennial population. A research run by YouGov has shown that one in five 25-34 is in financial difficulties. Millennial have to content with the burden of student loan and high childcare cost. Millennial have also find alternative to buying clothes they are renting them or just go in charities shops.
Research suggested that by 2030 two third of the population will be aged 55 and over. Ageing population has been an issue In Europe and particularly in the UK in the recent years. What this mean for retailer like ASOS? For ASOS is going to be a challenging issue because in the next few years his customer base will slowly shrink whilst the children sector will be blooming. It is expected that by 2035 the number of children from zero to sixteen will rise by 12%. ASOS will have to adjust his strategy to respond to this shift in the demography.
A high number of people are now considering environmental and social impact before purchasing. Brand has been increasingly pressured to pay fair wage to their workers, to offer safe working condition, to stand against modern slavery, and also they have been required to show supply chain transparency by listing the suppliers and factories they use. The social responsibility or fairness along with transparency practice has become a major criteria to gain or lose customers.
Technological platform play a major role in ASOS as the company is online base. According to ASOS 2019 report the company has substantially invested in new technology programme to enhance customer experience. Last year they launched new payment methods in Australia, Russia and US. The main external factor to all these improvement is Cybersecurity. The world Economic Forum consider cyberattack as one of the top ten risk to global business. Theses illegal security breaches try to access customers personal data, or shut work operations down. So ASOS made this statement “we have deployed investment into efficient security to offer customer same experience in safe and secure way”.
Social media trend also playing an important part in fashion industry. Approximately 60% of exposure is through mobiles. Many Brands included ASOS use that platform to cultivate their image, make promotion, increase traffic and ultimately to sale more.
The UN Climate change charter stated that fashion industry is 10% responsible of the carbon footprint in the world. New regulation been adopted to reduce the impact of fashion in the environment. ASOS has joined the movement for a more ethical fashion. The company has created a “click and collect” scheme to reduce carbon footprint. The website has launched “Men Cheap Monday” which is a selection of denim made from eco-friendly material. The company also sells in their “Responsible Edit” section all environmental conscious clothing which are made from recycled good, plastic waste and using less water.
Another environment factor that could impact ASOS performance is natural disaster like flood or fire. The company has been a victim of fire in Germany. The warehouse caught fire causing damage worth £6.3m forcing the company to suspend its website orders have to be redirect to Barnsley warehouse in UK causing delays for customers. The company share price in stock market fell by 2% after that disaster and bounce back later on. Just showing how much external forces could badly impact brand performance.
ASOS has face justice for copyright infringement. The company have to pay £20.2m to two retailers in Switzerland and Germany. The UK fashion retailer been accused of stealing clothing design. This case show that failure to abide by the law which in this case is the copyright law a company could end up paying out a substantial amount of money.
Amount other legal requirement companies like ASOS should meet is Animal welfare policy. The online retailer has made all his customer aware that all product sold on their website do not use animal derived material this is coming from the impact that activist group like PETA has forced the fashion industry to take action against animal cruelty.
Disruption in operation for company like ASOS comes at huge cost. Fire in their warehouse has highlighted the risk of operating distribution centre in one specific location. ASOS should rethink their supply chain strategy. The company should spread the risk by investing in more than one warehouse per location so that they can cope in event of unforeseen circumstances. That will keep the brand reputation intact. This strategy will minimise the risk of losing high level of stock packed in the same warehouse and therefore save company money.
ASOS should expand his marketing campaign to the older demographic via magazines. A marketing strategic to attract the ageing population would be beneficial and profitable for the company. Many over 55s are in ease with fashion. They still think young and want to look young. The “Greynaissance” is in trend and it is a market segment which might prove very profitable. Many adverting campaign now featuring fashionable grey hair. ASOS should seize the momentum and tap into the growing market of the older generation. They have less financial difficulties therefore more disposable income to shop.
ASOS PLC Contingency Plan
Increasing Operation Complexity
As the company is growing at a fast paced with the ambition to become the world leader in fashion retail sector the business would continuously evolve new operation strategies to support long term efficiency and profitability. An executive committee is assigned for major transformative programme.
Understanding Local Market
Giving the extreme competition in global retail landscape the company is taking into account local knowledge in new market. Replicating UK model to all international subsidiaries could be a fatal error. ASOS intend to work with independent consultant with local market expertise especially in countries where ASOS don’t have a strong presence.
ASOS SWOT Analysis
- Company image: ASOS is one of the most recognisable brand in the fashion retail sector. The brand is promoting positive body image.
- Product portfolio: ASOS plc offer a large range of product over 85000 brands
- Social Media: strong presence in social media platform with over million followers
- Quality: Good quality product at affordable price.
- Financial position: ASOS plc is a very profitable although they been through some financial issues their return on capital expenditure still positive.
- Decision making process is centralised which is time consuming and cutting short on innovations.
- Free shipping /return policy coming at a huge cost for the company every year.
- No physical shops some customers appreciate more the traditional way of shopping experience touching products and trying them.
With globalisation the company is able to cover a large market. The company is expanding in new territories like china and Russia.
Competition is though in fashion retail. ASOS main competitors Boohoo, Misguided Nbrown are doing very well they were offering higher discount during the black Friday sales putting ASOS into a difficult situation. “Our offer looked uncompetitive and we experienced the results of our loss”. (ASOS plc Report 2019)
The World Bank forecast slow grow in the global economic for 2020 meaning that businesses will still have to face though and challenging economic environment. As we living in a globalised society many business in the retail sector will have to be in phase with their external environment. Analysing such environment Using Pestel and SWOT tools is crucial for the management. ASOS plc has realised that going global means knowing its strengths and weaknesses, seize every opportunity and minimize threats whilst adapting and adjusting to external forces. Despite the issues that ASOS Plc has faced the company is very profitable and successful.