ASOS Quits China. Why Does Fashion E-Commerce Always Struggle Here?

Affordable fashion e-commerce has too many weak spots in China: the wrong buys, adjustments that take far too long, and the total loss of the one edge it had at home — low prices. Cheap clothes are the last thing China is short of.

Log on to ASOS's Chinese site today and the featured slot on the homepage is still rotating an ad for the mid-season sale: everything 50% off and up. By May 2016, though, the site will shut down. After that, if you want ASOS, you will have to order from its official UK site.

Everything goes back to the way it looked before 2013, when the Chinese site did not yet exist.

On April 8, ASOS issued a statement: it "will cease local operations in China and continue to serve its growing number of Chinese customers through ASOS.com," the official UK site. The reason it gave: Chinese customers can currently choose from 6,000 products, while ASOS.com offers 80,000. Its Tmall flagship store has announced no changes for now.

Founded in 2000, ASOS is Britain's largest fashion e-tailer, with more than 6 million active users and more than 60,000 products. It has built its own labels and sells more than 800 designer brands. It turned profitable in 2004 and now operates worldwide, including in Russia, the US, Germany and France.

But the China business has gone badly ever since the Chinese site launched in 2013. ASOS's financial reports show the China operation lost 8.6 million euros in all. Shutting the Chinese site, the distribution center and the Shanghai office will add a one-off closure cost of £10 million and an operating loss of £4 million this fiscal year.

ASOS did try for the Chinese market — it built a Chinese site, at least. In its second year here it also opened an official flagship store on Tmall, so more Chinese shoppers would know it existed. Still, people found this fashion e-tailer from across the ocean odd.

Under our earlier report Judging by Its New Arrivals, ASOS Is Still Testing Chinese Shoppers' Taste, readers talked about what it chose to stock: "There still aren't enough styles to choose from — I'd rather buy straight from the UK site." "The domestic site must be several seasons behind the British one." And: "Please stop with the giant open backs and the V-necks that plunge to the navel."

On Zhihu, many people have also gathered to discuss the Chinese site. User joyce wrote that the outlook was not good: ASOS's design style is still a fairly niche taste in China. When the designers command no great following, even a style you like is easy to find on Taobao — and the styles on the site are not distinctive or striking enough. In a thread titled How Would You Rate ASOS's Chinese Site?, user NINI wrote that although the Chinese site offered free international direct shipping above a certain spend, its prices were in fact higher than the UK site's, and most of the styles were what Britain had not sold.

In short, many people were skeptical of ASOS's Chinese site: either the styles tried too hard for the way Chinese women actually dress, or — next to the hunting they used to do on the UK site — the Chinese site restocked far too slowly.

These problems are not ASOS's alone. Every foreign fashion e-tailer coming into China fails to adapt to some degree, and the awkwardness hides quietly in one of the steps you take while staring at the screen, happily filling a cart.

SHOPBOP, the fashion retailer Amazon bought in 2006, drew praise for its Chinese site. Everything looked "perfect" — until you had picked your items and were ready to pay, filling in your name and shipping address. Only then did you find that, although this was a Chinese site built for Chinese shoppers, this step wanted you to spell your name in pinyin, like a foreigner. Type Chinese characters and the system popped up a message: our system does not currently accept non-English characters, we are working to improve this, please resubmit your information using English letters (ABC...).

Another thing foreign fashion e-tailers often miss: Chinese shoppers like to open a new tab for every new product they look at, while foreign sites still tend to have you click arrows to page forward and back. That does not match how Chinese shoppers browse.

Foreign fashion e-tailers often forget that Chinese shoppers were raised by Alibaba. Taobao taught them to expect what is probably the world's cheapest and possibly fastest delivery; even for a trinket worth 10 yuan, they get a stack of close-up photos. They can also buy "the one the goddess wears," the "don't miss it," the "one piece and you're set for winter." Tacky as these lines are, they work — better, at least, than a dry description that says nothing.

None of this is easy to find on ASOS's Chinese site. Scroll down a product page and you get a few close-up shots; for womenswear there are only three photos on a live model — front, side, back — and menswear is much the same. The product copy is bare, no more than a line under the brand name: "stretch jeans," or "fine-knit side-split jumper dress." And the key point: at comparable quality, ASOS's clothes are no cheaper than Taobao brands.

"For Chinese shoppers, ASOS has no edge in style, no edge in price and no edge in brand. Closing the Chinese site makes perfect sense," said Jenny, a veteran of the fashion e-commerce business, to QDaily (a pseudonym, at her request).

"ASOS's quality is ordinary and its prices are fairly low. But China is full of low-priced clothes. So why buy ASOS? Where is your advantage?" Jenny said.

Foreign e-tailers arriving in China mostly transplant the way they run things at home. There is nothing wrong with copying yourself, but against what Chinese shoppers want, they adjust far too slowly.

In December 2015, ASOS held a press preview of its spring/summer collection in Shanghai. It looked like plenty of styles: the womenswear was overwhelmingly the 1970s revival look then in fashion, in loud, bright colors, with a lot of sequins and woven work; the menswear followed the Yeezy line Kanye West made with Adidas.

In fact ASOS sold few products in China, and brought in very few of its third-party partner brands — which is also why many shoppers preferred to buy from the UK site. On Tmall it listed only a sliver of its range, no third-party brands at all, and even of its own labels only the cheap line; new arrivals also landed later than on its own site. That says something about how ASOS saw Tmall. But even on the Chinese site, the range of styles was thinner than Britain's, and the third-party brands were not in the same league.

At that spring preview, Daniel Jenks, then general manager for China, told QDaily: "We need to test the Chinese market, and the styles and brands we brought in at the start will be adjusted as our understanding of the market changes." Next, ASOS wanted to "narrow the size range, because sizes 8 to 10, standard in Europe and the US, are not popular in China. We want to turn stock over faster by putting it into more styles rather than into sizes that pile up."

"When the goods arrive, we have to find models, shoot them, retouch the photos. Chinese customers aren't fools — they can see at a glance what the foreign site looks like. On the Chinese site, goods took a long time to arrive, tariffs were high, new arrivals were slow. Customers who love fashion don't want to keep buying last season, and an e-commerce site can't keep discounting forever," said Lisa, a former employee of THE OUTNET.COM's Chinese site. She was not talking about ASOS, but the problems are the same.

"ASOS took too long to decide and too long to talk," Lu Xiaoxia, vice president of overseas brand recruitment at Xiu.com, told QDaily. "It's a shame — they had first-hand data. But the Chinese market changes fast, and one of their decisions often took years to carry out."

Foreign fashion e-tailers have come and gone in China these past few years, and the one constant winner has been Alibaba.

Net-a-Porter Group SpA launched a Chinese site for THE OUTNET.COM in 2009. By 2015 that Chinese discount site no longer existed; it was folded straight into THE OUTNET.CN, the official site. The Chinese online shop of the American department store Neiman Marcus lived an even shorter life, leaving China after just six months.

Between 2012 and 2014, foreign luxury e-tailers pushed into China, with affordable fashion e-tailers close behind.

Those were also the years when Chinese ideas about fashion, and above all Chinese habits of buying luxury, changed sharply. Spending on company and government accounts used to drive most mainland luxury consumption; under the government's rules against extravagance, that spending fell fast, and Chinese luxury buying shifted to people paying out of their own pockets. Money of one's own is of course spent more carefully and more fussily. These shoppers do not necessarily buy at home, and do not necessarily buy online — they order from abroad, or simply buy on a trip overseas.

The affordable e-tailers that followed the luxury sites into China also found rivals already there, and well matched. Zara began selling online in China in 2012; H&M did the same in 2014. The online shops of these fast-fashion brands, plus their stores, plus Taobao, already answered everything affordable fashion e-commerce was trying to answer — low prices, speed, convenience and style. All of them compete with a company like ASOS.

Affordable e-tailers run into another problem: the size of the average order. In retail, the average ticket sets a brand's position. "At low prices, each order holds more items. Spending 1,000 yuan on five items and spending 1,000 yuan on one item do not cost the same. Say the quality is poor and a lot of people buy: you get heavy returns every day, which means high warehousing and customer-service costs. First someone picks the 10 garments and packs them; then, if you send them back, someone has to put them all where they came from," Jenny said. So an affordable e-tailer like ASOS can sell a lot without earning much.

Built on enough traffic, none of this would matter. ASOS and the many other sites that moved onto Tmall clearly hoped to solve the problem of being seen. But by the time it arrived, Tmall was already crowded with competitors selling much the same thing, and the British would not part with a big budget to buy traffic — we certainly never saw their ads everywhere.

Worth noting: these are not problems only foreign fashion companies face when they try to enter China or hold on here. All of our interviewees said some version of the same thing: "A Chinese e-commerce company with these problems would die just the same."

Ren Guoqiang, senior partner and vice president for Greater China at the management consultancy Roland Berger, puts it this way: "The people who liked ASOS were always a small band of trend-chasers. China's population is enormous — stir one percent of its buying power, or one in a thousand, or one in ten thousand, and the potential is still large. ASOS built the Chinese site so that people who don't read much English but want to follow trends would learn the brand. As a business decision, closing the Chinese site is the right one." However the exit is dressed up, closing the Chinese site means cutting the losses.

ASOS leaves quietly after three years, and it may still not understand what kind of market this is, what kind of shoppers are in it, or who its real competitors are.

It may not be the only one.

Cover image and in-article images from: sixwolves, marketingweek, Visual China Group, YouTube, theguardian, telegraph