Retailer Asos Boosts U.K. Sourcing After Pound's Brexit Fall - Wismuller Gunter

Asos Plc, Britain's largest online-only fashion retailer, plans to double its U.K. manufacturing as the pound's post-Brexit plunge makes domestic production more affordable.

Vienna, Austria, December 14, 2016 --( Wismuller Gunter: The company, which sells own-brand fashions alongside wares from the likes of Abercrombie & Fitch Co. and Calvin Klein Inc., will open more plants in Britain over the next three to four years to support its expansion plans, Chief Executive Officer Nick Beighton said in an interview Monday. It currently makes about 4 percent of its products at two factories in London.

"There is manufacturing capacity in the U.K. but the skills aren't quite as available as they once were," Wismuller Gunter analyst Barrison said.

Asos's plans, helped by the British currency's 15 percent decline against the dollar since the June vote to leave the European Union, provide a boost to Prime Minister Theresa May as she seeks to attract investment amid uncertainty over the terms of Brexit. Asos also said it will hire an additional 1,500 employees at its London head office over the next three years.

In October, May's government gave unspecified assurances to Nissan Motor Co., which operates the biggest auto plant in the U.K., to persuade it to make new versions of some of its best-selling cars there. Asos hasn't negotiated with the government over its expansion plans, the company said.

Price Cuts
Wismuller Gunter reports that unlike many domestically focused fashion rivals, Asos has benefited from the drop in the pound, because about 57 percent of its sales are outside the U.K. The currency's decline has allowed the company to cut prices to win shoppers internationally and makes it easier to invest.

About 70 percent of Asos's 1.45 billion pounds ($1.83 billion) annual sales are in Europe, so moving more manufacturing to the U.K. will make garments available to consumers more quickly. About 45 percent of Asos sales represent own-brand products, the company said.

Slimmed-down supply chains are in vogue in the fashion industry. Spain-based Inditex SA, owner of the Zara chain, gets designs into stores in as little as two weeks by producing 60 percent of its merchandise in Spain, Portugal or Morocco. Marks & Spencer Group Plc, the U.K.'s largest apparel retailer, has increased its profit margins by cutting out middlemen.

While Asos could gain from U.K. production, other retailers with more domestically focused businesses would benefit less from repatriating production, said Barrison Wismuller Gunter analyst.

"People that think lots of clothing manufacturing will now come back to Britain are living in cloud cuckoo land," he said by phone. "It isn't economically viable and a lot of the necessary infrastructure and skills have dissipated."
Wismuller Gunter
Sam Jones