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Management Case Study - Asos Company

Management Case Study - Asos Company

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asos.com is the UK’s leading online fashion store for women and men. Launched in 2000,the online retailer targets fashion conscious 16-34 year olds. On asos.com there are 9,000products available at any one time, with 450 new fashion items added every week. Theseinclude women’s fashion, menswear, accessories, jewellery and beauty products. asos.comattracts 3.3 million unique shoppers every month and has 1.8 million registered users. An online service of this scale requires a substantial background operation to fulfil orders andto provide customer service. Five years ago, asos.com had just 550 square metres ofwarehouse space. Today, to meet growing demand, asos.com now has 32,500 square metresof warehouse space – equivalent in area to nearly five football pitches. In April 2005,asos.com employed 47 permanent staff. By February 2008, it had 250 employees.These human and physical resources areneeded to meet rapidly increasingdemand. Sales increased by 90% year onyear for the 12 months to 31st March2008. In April 2008, there was a dailyaverage of 220,000 unique visitors tothe asos.com website. The growth insales translates into profit. Group profitis likely to be in excess of £7 million.
Ownership and management structure
asos.com is a public limited company (plc). This means that the business is owned by
and that its shares can be purchased by the general public. asos.com sharesare traded on the
 Alternative Investment Market (AIM)
, which is part of the LondonStock Exchange.Joining AIM has several advantages for a growing company such as asos.com. AIM-listedcompanies do not need to comply with the strict rules that must be followed by businesseslisted on the main London stock market. They do not need to meet any size threshold, either in terms of
market capitalisation
or the numbers of shares that they issue. This means itis easier and cheaper to obtain an AIM listing. It provides smaller companies with a chanceto raise
through the sale of shares. This capital can be used to finance growth. As a limited company, asos.com is required by law to have a memorandum of associationand articles of association. A
memorandum of association
sets out the name andpurpose of the company and the number of shares it can issue. The
articles ofassociation
sets out the rights of shareholders, the roles of directors and other factors thatrelate to the control and management of the company. These documents establish acompany as a legal entity. Without this legal framework, the business would not be able toissue shares.
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Strategic growth in thefashion retail industry
OwnershipGrowthMarket segmentsOrganisation structure
GLOSSARY Shareholders:
persons owning or holding a share or shares in acompany.
 Alternative InvestmentMarket (AIM):
the junior market,established in 1995, by the LondonStock Exchange providing tradingfacilities for shares of smaller companies.
Market capitalisation:
thisgives a measure of a company’svalue, it is calculated by multiplyingthe total number of shares issued bythe company by the current shareprice.
money, buildings,machinery, equipment etc.
Memorandum of association:
sets out the main details of acompany including its name,purpose and the number of sharesit can issue.
 Articles of association:
sets outmain arrangements for control andthe internal running of a company.
The asos.com board consists of two non-executive directors and three executive directors.
Non-executive directors
do not have day-to-day operational responsibilities for thebusiness. They are invited to join the board because they bring experience and qualities thatcan guide the strategic direction of the company.
Most companies seek to grow. They want to increase profits for their shareholders. They alsowant to increase the overall volume of business because this can lead to significantreductions in costs. These are known as
economies of scale
. For example, as asos.comgrows, it will require a larger warehouse and distribution operation. As it handles more salestransactions, it will find it easier to make these operations more efficient. It will also be able toget better deals from its suppliers through ordering goods and services in larger quantities. A company can grow in several ways. It can grow by simply selling more of its products. Thisis known as internal or 
organic growth
. It can also grow by taking over or merging withother businesses. This is known as external growth. It is quicker to expand a business throughexternal growth. However, a company would need finance to fund any
. A company that seeks to grow through acquisition can adopt two main strategies. It canpursue a strategy of
horizontal integration
. This occurs when a company takes over, or merges with, a direct competitor. For example, when the supermarket chain Morrisonsacquired the rival Safeway chain in 2004, it simply created a larger supermarket chain. Thiswas a classic example of horizontal integration.Companies can also seek to grow through a strategy of
 vertical integration
. This is whenit acquires a business at a different stage in the chain of production. It may acquirebusinesses that were previously its suppliers or its customers. For example, a furnituremanufacturer might purchase a chain of furniture stores so that it can sell its products directto consumers. It would previously have looked to sell its products to this retail furniturebusiness. Acquiring or merging with customer businesses is called
forward verticalintegration
. The manufacturer could also choose to merge with one of its suppliers, suchas a timber merchant. This would give it more control over one of its key inputs. Merging withsuppliers is called
backward vertical integration
.asos.com has achieved rapid growth internally. It has not grown by acquiring other businesses. Instead, it has grown by increasing its
customer base
, number of brands andproducts available to buy at any one time. Moreover, it has grown rapidly without incurringthe problems that this can cause for some businesses. At first glance, rapid growth might seem to be a positive occurrence. However, it can causeproblems and a firm that grows too quickly can run into difficulties. A surge in demandgenerates additional costs. It costs money to fulfil orders. For example, a business mayrequire extra staff to process orders or it may need to buy in more stock or supplies. A business may have to meet these expenses before it receives the proceeds from theadditional sales, and this can lead to cash flow difficulties.Even if the company has enough capital to finance a surge in demand, it may still faceproblems. It may run into logistical difficulties and simply lack the short-term capacity to fulfilorders. It may not be able to make products sufficiently quickly to meet demand. Thissometimes happens in the run-up to Christmas, when a manufacturer cannot produceenough of that year’s ‘must-have’ toy or gadget. A business that fails to meet demand riskslosing customers. It can take a long time to repair a damaged reputation.
Improving the business
asos.com’s strategy of organic growth has shown substantial results. It has managed to satisfyincreased demand. The company has also increased its
market share
GLOSSARY Non-executive director:
outside director who is a member of the board of directors of acompany but does not form part ofthe executive management team.
Economies of scale:
lower unitcosts that arise from larger scaleoperations.
Organic growth:
increasing salesand new customers for the existingbusiness to improve profitability.
taking over another company by buy out.
Horizontal integration:
joining another business at thesame stage of production.
 Vertical integration:
where acompany buys another companythat supplies it with goods or thatbuys goods from it in order tocontrol all the processes ofproduction.
Forward vertical integration:
vertical integration throughcombining a core businesswith its buyers.
Backward verticalintegration:
vertical integrationthat combines a core business withits suppliers.
Customer base:
the maincustomers of a business.
Market share:
a company’ssales expressed as a percentage ofall sales within the market.
asos.com has recognised that the conditions were right for an online retail business in thefashion retail sector. The company has used the Internet as the primary growth tool. It hastapped into the rapidly expanding online retailing market. As research in 2007 by the onlineretail consultancy Interactive Media in Retail Group (IMRG) showed:total online spending in the UK reached £30.2 billion in 2006the number of UK online shoppers grew from 16 million in 2003 to 25 million in 2006,an increase of 56 per cent over four yearsInternet access grew by 45 per cent in the same period, with 42 million people havingaccess in 2006 compared to just 29 million in 2003the number of broadband connections more than tripled in four years, by 2006 there weremore than 12.7 million UK broadband connections.asos.com targets its offer at a specific market segment of young (16-34) fashion-consciousconsumers. This
market segment
now accounts for 20% of the Internet shoppingpopulation in the UK. According to the market research organisation Mintel, women aged20–24 are more likely than any other segment to spend their money on clothing andfootwear. The average spend per head on clothing increased by 76% in 2006 to £1,208.asos.com offers an extensive and diverse range of products for men and women. Itsdepartments cover:own brand clothingbrands – high-street and designefootweaaccessories, for example, sunglassesjewelleryswimwear.The clothing ranges also cater for narrow market segments, for example, for petite women(under 5’3”). As well as its own brand, asos.com also enters into collaborations with designer labels. Thisenables it to provide well-known brands that appeal to its young, fashion-conscious targetmarket. asos.com stocks over 400 brands including:DieselAll SaintsFred PerryLevisAdidasFrench Connection.However, asos.com would not have grown so rapidly if it did not offer a pleasurable shoppingexperience. The first step in any online business is to ensure that the website offers somethingof real value to consumers, something that cannot be obtained by visiting a store or a shop.One central question dominates asos.com’s planning: why would consumers choose to buyclothes online when they could visit a shop and see, feel and try on different items? asos.comhad to create an online shopping experience that offered convenience, choice, interestingstyles, competitive prices, all complemented with high levels of customer service such asprompt and reliable delivery.Heavy investment in the website – and its underpinning technology – has been vital. Behindthe technology and the website, asos.com has invested heavily in ensuring that customers getwhat they want from the online store. Internet shoppers have very high expectations. asos.comknows that customers must be pleased with their shopping experience.
Communication to support growth
The structure of business organisations usually alters as they grow. When a company is verysmall, a manager tends to take on most managerial functions. As a company grows, it oftenintroduces new layers of management and organises itself into specialist departments. As ithas expanded, asos.com has developed a more hierarchical
organisational structure
,with individual departments responsible for specific functions such as warehousing, productdesign and merchandising.
GLOSSARY Market segment:
dividing uplarge heterogeneous markets withsimilar needs into smaller markets(segments) according to sharedcharacteristics.
Organisational structure:
defines each employee’s rolewithin the organisation and definesthe nature of their relationship withother employees.
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