Asos rolled out next-day delivery in the U.S., starting in cities like Portland, San Francisco, New York City and Philadelphia. The move comes as many retailers and fashion brands are looking to keep up with customer demands, and Amazon, with next-day or same-day delivery.
“Amazon, because of its scale, has really helped shape consumer expectations that you need to have next-day delivery, or at the very least, two-day delivery. It’s an escalating arms race, and the challenge for everyone else is meeting this consumer expectation of 24-hour delivery or next-day delivery, with the brand paying for it,” said Ray Hartjen, director of marketing at retail analytics firm RetailNext.
According to a recent report from Deloitte, 64% of online customers expect an order placed by 5:00 p.m. to qualify for next-day delivery, while another 61% believe orders placed by noon to qualify for same-day delivery. Asos’ established rate for next-day delivery is $14.99 to $19.99. Customers can also sign up for “premier delivery” in the U.S. for a full year of unlimited two-day shipping, a $19 annual cost.
The next-day delivery service is being supported by Asos’ Atlanta-based warehouse, opened in October 2018. The 1 million-square-foot warehouse was created to cut down on delivery times for U.S.-based customers, as the brand continues to gain traction in the states.
“Global brands looking to build here in the U.S. absolutely have to have a distribution center here. As far as streamlining costs, I wouldn’t be surprised if Asos sees better margins and becomes more profitable, because they will be spending less on their shipping and logistics within the U.S.,” said Syama Meagher, chief retail strategist at Scaling Retail.
The warehouse itself has not come without setbacks, though. On the brand’s latest earnings call last week, Asos said that, due to issues with technology in its new warehouse, the brand has seen a $25 million impact on its bottom line. The problem resulted in “restricted product choice and availability for customers in the U.S. and Europe,” Nick Beighton, Asos’ CEO, said on the earnings call.
The decision to open up more fulfillment centers is something many digitally native brands are grappling with. Rent the Runway also recently announced plans to open a new 300,000-square-foot fulfillment center in Texas, supplementing its existing fulfillment center in New Jersey. By adding another center away from one of the coasts, Rent the Runway is able to fulfill orders (including dry cleaning garments and repacking them for the next customer) more quickly and hopefully keep customers satisfied by sending out more orders on time.
Opening new fulfillment centers also comes without a hefty price tag. Asos reportedly spent $40 million on its Atlanta warehouse.
Offering next-day delivery can force additional costs for the brand. While Asos customers are covering the initial cost of shipping, that doesn’t take into account potential losses the company may get hit with after a customer receives their order. A customer ordering something in a few different colors or sizes and then sending back a number of unwanted items several days or weeks later hurts the brand’s bottom line.
“It’s that time in between, where the products are in the consumer’s home and aren’t available for sale to other consumers; that’s risky. You have a bloated inventory that’s not for sale, and [low] inventory is a cash-flow kill,” said Hartjen. “Firms are finding themselves with cash-flow problems, not only paying for shipping but having inventory that is unsellable when it’s returned to them. It has to be reprocessed, and if it’s seasonal, it might need to be marked down or even sent to an outlet store or a discount bin.”