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ASOS poses huge threat to Aussie retailers

In a tad over 52 days, 8 hours and 19 minutes, Australian retailers will attempt to jumpstart their ailing sales targets once again through the co-ordinated online sale Click Frenzy. But here’s something to think about: during that same period of time Australians will make more than 753,790 purchases on ASOS.com (LSE: ASC), the massive online London fashion retailer.

That’s one every six seconds, or four 747s’ worth of fashion goods every week. The site, which offers student discounts, free shipping, an unrivalled range and favourable return policies, poses a massive potential threat to Australia’s fashion retailers.

Both traditional store-based shops like Myer (ASX: MYR) and David Jones (ASX: DJS), as well as companies re-positioning their strategies with a focus on online sales, like Oroton Group (ASX: ORL) and Specialty Fashion Group (ASX: SFH), face the prospect of ASOS becoming a very significant competitor.

Then there is Australia’s own imitator The Iconic, which has gained much support from private equity firms keen for a slice of the online-pie. And it’s a big pie! Latest figures from NAB’s (ASX: NAB) Online Retail Sales Index show online sales year-on-year increasing by 15%. That is down from as high as 27% in January, but is still whopping compared to the meagre 0.9% growth achieved by physical stores in February of this year.

As well as a lower cost business model, a valuable advantage online fashion retailers like ASOS have is the ability to more easily dispose of excess stock or end-of-season lines by offering huge discounts (asos.com is renowned for its 70% off section) to a massive round-the-clock customer base.

It’s a fearsome model to be up against as a fashion retailer and is being supported by a ravenous customer base.  International sales for ASOS were up 39% to $321 million in the company’s first half of FY 12-13, Australia accounting for 61% of that figure.

Foolish takeaway

Click Frenzy may market itself as ‘the sale that stops the nation’, but every second the retailers wait for the time to tick down is another sale potentially lost. The concept has been a valuable way to raise the profile of online retailers in Australia; however it is far from the defibrillator the industry needs up against the likes of ASOS and The Iconic.

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More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Regan Pearson does not own shares in any of the companies mentioned in this article.

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