Dive Brief:

• Asos will work toward a fulfillment model in which its global warehouse network will fulfill any order from any warehouse, stock permitting, executives laid out in an earnings presentation Wednesday. 
• When an item is out of stock at the designated warehouse for that customer's address, another warehouse in the company's global network will eventually fulfill the order. That means U.S. orders could be fulfilled from Atlanta, the U.K. or Germany, depending on where items are in stock. Vendors may also dropship to customers on behalf of Asos. The company said it will phase in this "flexible fulfillment" strategy over several years. 
• Asos will add a second U.K. fulfillment center to its network, bringing the total to four. The company expects the existing warehouse network to run out of capacity by 2023, so a gradual buildup of capacity in the new facility and a gradual transition to the flexible model will be timely and minimally disruptive, CEO Nick Beighton said.

Dive Insight:

Asos executives declined to offer a timeline for the conversion to the "flexible fulfillment" strategy they laid out, but they made clear the company is prioritizing making a sale and fulfilling an order over the profitability of that order. 

In Asos' existing model, U.K. and "rest of world" orders are fulfilled from the U.K., orders from the European Union and Russia are fulfilled from Germany, and U.S. orders are fulfilled from Atlanta. If the designated warehouse does not have an item, that region's website will show it as out of stock. In the new strategy, items will show as in-stock for all customers if they are in-stock at any of the soon-to-be four fulfillment centers. 

But shipping U.S. orders from Germany, for example, will carry a higher shipping cost than shipping these orders from Georgia.

The varying levels of product flow and warehouse automation have created different experiences for Asos customers in Europe and the U.K., compared to customers in the U.S. European suppliers faced compliance issues when entering the U.S. market for the first time, which slowed inventory buildup in Atlanta and led to a diminished assortment for U.S. shoppers in the early quarters of 2020 and hampered sales, Beighton said on a July earnings call.

Giving U.S. shoppers access to the global inventory may alleviate this problem in the future, and monetizing currently unmet demand will eventually be worth the increased cost, Beighton said Wednesday. 

In describing the gradual rollout of the new fulfillment strategy and the new fulfillment center, Beighton emphasized the necessity of avoiding further operational disruption.

Warehouse operations have been somewhat of an Achilles' heel for Asos in recent quarters. In 2019, a technical glitch with the company's warehouse management software cost it roughly $30 million when the system stopped recognizing incoming inventory. Just months after resolving that problem, Asos' fulfillment times were stretched when social distancing disrupted its automated fulfillment centers, in which employees are typically required to work clustered together.

The retailer has been focused on building back throughput capacity across warehouses and completing the automation conversion in its fulfillment center in Germany through the spring and summer.

A gradual rollout of the flexible fulfillment strategy may also help Asos avoid the elevated airfreight rates supply chains are contending with at the moment as the coronavirus pandemic stretches on. Flying goods from Europe to the U.S. is inherent in the plan for items out of stock in Atlanta, and Transatlantic airfreight rates have been above historic levels for months as the pandemic drastically decreased passenger flight and with it, belly cargo space.