Consumer

Andrea Felsted is a Bloomberg Gadfly columnist covering the consumer and retail industries. She previously worked at the Financial Times.

British retailers have not had a good Brexit -- consumer confidence, retail sales and share prices have tumbled, and the rout in the pound raises their cost of buying goods abroad, which are priced mostly in dollars.

The exception is Asos, the online seller of off-the-shoulder tops and festival-ready waterproofs to fashionable 20-something customers in the U.S. and Europe as well as at home in the U.K. It reported better-than-expected sales and increased its revenue-growth forecast for its full financial year on Tuesday, sending the shares up as much as 6 percent.

Amazon had better take notice.

The sterling slump is a boon for Asos, since, unusually for a retailer, it pays for most of the clothing it buys in pounds. Combined with the fact that it obtains about 55 percent of its sales from outside of the U.K., the company's right to expect a boost in the volume of sales to customers paying in dollars or euros.

That should help offset any price pressures that arise further down its supply chain, where sellers may pass along higher costs for commodities such as cotton, that are priced in dollars.

But there's more to Asos's story than that. The company has learned a lot of hard lessons from its annus horribilis of 2014, when profit warnings were compounded by a fire at its main U.K. distribution center.

It's invested in improving delivery, and engaging with customers through everything from a loyalty program to live video-sharing service Periscope. That should give it the edge over rivals that are focused on cost cutting.

A-Team
Asos has outperformed European retailers and the FTSE since the surprise Brexit vote
Source: Bloomberg Intelligence, Bloomberg data

So Asos was well-placed to weather the Brexit fallout, as Gadfly has argued. In addition, chief executive Nick Beighton's plan to juice up its advantage looks sensible. He said any benefit from a pickup in international sales volumes will be used to cut prices.

It now looks possible that Asos could regain its traditional premium to Amazon. Asos's enterprise value is currently 2.2 times the next 12 months sales, just below Amazon's 2.3 times.

Catching Up
Asos is narrowing its discount to Amazon as foreign exchange and investments boost sales
Source: Bloomberg

It's not a clear path to victory over Amazon. The U.S. retailer is ramping up its assault on fashion, and any competitor is right to fear that 800-pound gorilla arriving on its doorstep.

And Asos will have to ensure that it doesn't squander its advantage over rivals from the weak pound. The investments it is making in will lower its gross margin 0.5 percentage point for the full year, so investors will need some patience if they want to see the full benefits from its advantageous positon come through.

But Amazon has yet to prove its mettle in clothing, with some fashion brands reluctant to sell through the price-focused site.

And Beighton himself is a weapon for Asos. He's put a new energy into making the most of the company's focus on young hip customers. That, plus the work it is doing on engaging with them, should give it an edge against the American giant.

Rivals focused on selling to U.K. customers and scrambling to preserve profit just won’t have that benefit.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Andrea Felsted in London at afelsted@bloomberg.net

To contact the editor responsible for this story:
Jennifer Ryan at jryan13@bloomberg.net