Asos will increase marketing spend in 2019 as sales growth unexpectedly slows

Dive Brief:

British online retailer Asos announced that its 2019 marketing spend will be "stronger" than previously indicated as the company reacts to an unexpected drop in sales growth, according a report from The Drum citing an unscheduled call the company held with investors. Asos shares dropped 40% following the call.
Asos said it expects 15% growth for the year to August, down from projections of 20% to 25%, which company officials attributed to an "unprecedented level of discounting" across the retail industry and the brand's failure to match significant discounts by competitors.
The retailer reported a 14% increase in total group sales for the three months to November, but said that the month leading up to Christmas was "significantly behind." The U.K. accounts for 40% of Asos' total business and delivered 19% growth. U.S. performance grew 13%.

Dive Insight:

Online and direct-to-consumer brands have been disrupting the retail space. But, Asos lowering its growth expectations signals that online retailers may not be doing as well as brick-and-mortar shops, according to analysts cited by The Drum. The Asos call is significant for the broader online clothing market, the analysts suggested, as it indicated the coming year could be a tough one due to economic uncertainty and weakening consumer confidence.

Asos increasing its marketing spend is part of the retailers effort to rebound from slowing growth and lower holiday sales. The announcement comes after the company said in October that it was reducing its ad spend from 6% of revenue to 4%, and the company has been working with ad agencies like Uncommon to create in-house brands. Asos has also been investing in voice technology and artificial intelligence.

The online retailer may also be rethinking its Black Friday strategy. This year, Asos offered 20%-off discounts, in line with previous year, while competitors offered deeper discounts. More brands are refocusing their holiday ad campaigns to be more season-wide, rather than focusing on specific days, like Black Friday and Cyber Monday. A recent Kantar analysis found that just 11 retailers spent $9 million on Cyber Monday ad messaging on TV this year, down from $19 million from 12 advertisers last year. Overall, national holiday ad spending from the top 10 biggest-spending brands is down 2% this year from about $1 billion last year to $986 million so far this year.

It isn't clear yet if the weakness Asos is experiencing reflects changing consumer habits. While millennials have embraced online-only and mobile shopping, the younger Gen Z is 23% more likely to visit shopping malls compared to other groups, per a Foursquare and Carat survey. Gen Zers may be considered digital natives, with 98% owning smartphones, but only 22% report using the devices to make purchases, as many prefer in-person interactions with brands, according to UNiDAYS and Ad Age Studio 30.

Asos is not alone in increasing its marketing budget for 2019. Sixty-four percent of marketers are planning to increase their digital marketing budgets "marginally" in 2019, and 24% will increase budgets significantly, an Ascend2 study revealed. Marketers are also investing more in tools, including AI, to improve personalization.