This term paper shall include a comparison of the key performance ratios of ASOS.com and Net-a-Porter.com over the past 5 years to 2011 through calculation and analysis of relevant financial information using FAME data to assess how these companies have been performing during and after the recession.
Development during the recession of 2008/2009
The recession showed a downturn of consumer spending on clothes and footwear in the UK (United Kingdom). Yearly made family spending reports by ONS (Office of National Statistics) shows that the average weekly expenditure of all households on clothes and footwear in the UK have been dropping down since 2007 (figure 1). Despite of the global recession, online fashion in the UK was still growing in both sales and market share (Datamonitor, 2010). Fashion retailers’ websites were during the recession the favourite destination for online shopping, whereas in October 2008 and January 2009, books were the most popular category (Mintel, 2009). The rise comes down to the fact that shopping online is generally cheaper than on the high-street and consumers can search out bargains more easily.
Figure 1: Weekly average expenditure of all households in the UK on clothing ; footwear 2007-2010
Figure 2: Clothing sales online and share of clothing sector 2000-2010
Source: Datamonitor 360
According to a survey ,by Vogue magazine, consumers are looking for more quality during the recession. Consumers still want to look good and are focussing on trusted, heritage brands during this period. To provide consumers this quality big fashion names were working with high-street chains to produce quality lines at a budget price and keep style alive in the downturn. Because of this growing demand for quality clothes for a reasonable price and the online shopping growth during the recession, online retailers Like ASOS and Net-a-Porter kept on growing.
ASOS.com, a global online fashion and beauty retailer, was widening their product ranges in 2009 and was doing extremely well during the recession. one of the reason for ASOS’s success was partly down to its constantly updated stock (Computerweekly, 2009). Secondly ASOS.com was so popular during the recession is that this online fashion retailer has made its name by selling cheaper versions of celebrities’ outfits.
Net-a-Porter is a portal for the hottest designer labels and couture catwalk looks, which could be one of the reasons why it has been continues doing well during the recession. Many might say that those who have money are still prepared to spend it and that is why online fashion retailers like Net-a-Porter which are not seeing the effects of the recession. Net-a-Porter also launched a new website in 2009, TheOutnet.com, which is a high fashion outlet and was very popular under the consumers, because the products on this website were seen as stylish and affordable.
Financial analysis are been made to know how a company is performing in the market. There are three important analysis that can be made. These are an Actual vs. Planned Performance which shows the progress which a company has made during a period, a Trend Analysis and an Industry Comparisons to detect strengths or weaknesses. In order to evaluate the performance and financial condition of a company financial ratios are used which always have played an important part (Kung, 1981). A financial ratio is simply a comparison of two measurements of a business to each other.
There are several different ratios that can measure your company financial statement. The performance ratios measure how successful/failure a business is performing. Liquidity ratios measures a firm’s ability to satisfy its short-term obligations as they come due (Megginson and Smart, 2010).
Efficiency ratios are used to assess the extent to which asset an liability items are well managed and well utilised. And investment and lending ratios tells how a company is financed. This can be down by loans or/and investors (Gowthorpe, 2005).
To evaluate how Asos.com and Net-a-porter have been performing during and after the recession, performance, liquidity, efficiency and lending ratios are been used.
Analysis of financial data using ratio’s
Liquidity and efficiency
Lending and performance
Examination of the turnover and profitability of ASOS Porter and Net-a-suggests that the recession had a minimal effect. ASOS continued to grow aggressively during this period, with significant increases in turnover. ASOS had also an impressive return on capital employment, averaging around 60% over the four years, which would measure shareholders that their capital was being productive.
Longer stock turnover implying greater number of sales lines and lower cost of sales. The low debtor turnover ratio illustrates that customers online directly have to pay for the products. ASOS profit per employee was generally over .. that of Net-a-Porter. Illustrating
The gearing ratio of ASOS is low which should provide stability for the enterprise and an ability to plan growth for the future.
Overall ASOS managed to sustain significant growth through the recession, although it was starting from a lower turnover and a smaller business overall.
Gowthorpe, C, (2005) Business Accounting and Finance for Non-specialists 2nd ed. Thompson.
Kung, h (1981) An Empirical Analysis of Useful Financial Ratios. Financial Management. 10 (1)