RETAIL: Britain’s Asos Crushed by China E-Commerce

By on

Bottom line: Asos’ China retreat is due to the country’s extremely competitive e-commerce landscape, and shows that western retailers need to devote significant resources to succeed in the market.

Asos bows from China

In what looks like a first for a major western retailer, British fashion seller Asos (London: ASC) has officially pulled the plug on its China operations. Some might say that’s nothing new, since much bigger names like supermarket operator Tesco (London: TSCO) and electronics seller Best Buy (NYSE: BBY) have made similar moves in the last 5 years after failing to find a big enough audience among Chinese consumers.

But Asos is a different case, since it’s one of a growing number of western retailers that are choosing to come to China as a pure e-commerce plays, in a bid to save the huge costs involved with traditional stores and also take advantage of the nation’s online shopping craze. The problem is that China’s e-commerce craze has also attracted thousands of other retailers, and Asos couldn’t find a way to differentiate itself from the crowd.

Asos made its decision after learning one of the most basic realities of China’s retailing market, namely that price is the first, second and third biggest consideration among local consumers in many buying decisions. Names like Best Buy and B&Q operator Kingfisher (London: KGF) previously learned that lesson, after discovering their better service and shopping environments weren’t enough to lure Chinese shoppers who were most interested in getting the lowest prices.

According to the latest reports, Asos plans to close its Chinese distribution center, Shanghai offices and local website after failing to turn a profit in the more than 2 years since coming to the market. (English article; Chinese article) The company said it will take a relatively modest charge equivalent to about $14 million as a result of the move.

In making the decision, Asos said it wasn’t making the progress in China that it initially anticipated and was facing stiff competition for attention from online Chinese shoppers. One report is saying that Asos was defeated by local giant Alibaba (NYSE: BABA), which controls a whopping 50 percent of China’s e-commerce market.

That may be partly true, but it’s not the complete story. The fact is that Alibaba operates the hugely popular Tmall online B2C marketplace for third-party merchants, but it doesn’t sell any products directly to consumers itself. Asos is actually a third-party merchant on Tmall, and also operates its own standalone China online store. But Tmall has thousands of merchants, and Asos apparently couldn’t find a way to differentiate its products from all of that competition.

Lackluster Effort

Again, this really comes down to a question of price. Asos’ online shop was probably better designed than most smaller rivals, and its deliveries, return policies and broader customer service were probably more efficient and better. But at the end of the day, Chinese consumers were probably unimpressed by the company’s prices and probably could even find many  Asos products — both real and fake — available for less from other Tmall merchants.

To be fair, we should also note that Asos really didn’t seem to be putting much effort into its China effort. The fact that it’s only taking a $14 million charge for closing its China operations hints that it never really took China too seriously, and that it was probably hoping to make some quick profits there by opening a website and a warehouse or two to store and deliver its products.

The reality is that e-commerce may be less expensive in terms of renting and staffing stores, but it still requires big spending on marketing, infrastructure and customer service. Asos probably only had one or two distribution centers, slowing delivery times, and it also doesn’t look like it spent much on marketing. If that’s the case, the bigger lesson in this story is that China’s e-commerce market is full of potential, but also still requires major resources to succeed due to huge competition.

Related posts:

(NOT FOR REPUBLICATION)

(Visited 267 times, 1 visits today)