Continuing supply chain challenges mean that the peak trading period is proving “significantly softer” than it expected only two months ago, AO World says today. The electricals retailer says that in the short term it faces uncertainty in areas from poor stock availability and shipping costs to inflation. But in the medium-term it is confident that the shift online is here to stay and it plans to continue its strategy of international expansion.
Short-term, however, AO’s expectations of continuing sales growth have been hit by factors including a nationwide shortage of delivery drivers, and global supply chain disruption. In the current, second half of its financial year, it says it is seeing poor availability in some categories – especially those where it has started to sell more recently and where it has “less scale, experience and leverage”. Added to that, the costs of shipping, raw materials and consumer price inflation are proving “challenging uncertainties”. “As a result of these factors,” says AO in its half-year statement today, “the all-important current peak trading period is significantly softer than we anticipated only eight weeks ago”.
The update came as AO World today reported group revenue of £759.6m in the six months to September 30, 6% up from £716.6m a year earlier – and 67% up from the same period in pre-pandemic 2019. UK sales of £661m were 7% up on the previous year, and 65% up on the year before that. Sales in its German market came in at €115m (£99m). The euro result is 3% up on the same time last year, but 88% up on the same time two years ago. But at the bottom line it reported a pre-tax loss of £10.4m, down from a profit of £17.7m a year earlier as costs and administrative expenses increased, especially in advertising and marketing as the cost of customer acquisition rose in a more competitive market. AO now expects that in the full year group revenue will be flat at best – and fall by 5% at worst, while earnings are likely to be in the range of £10m to £20m.
That said, AO is confident that the structural shift online is here to stay – and it is planning accordingly. Over the half-year it sold to more than 780,000 new customers, saw its net promoter score average more than 80, hired about 500 drivers to bring its fleet up to full strength and opened five outbases with more than 300,000 sq ft of new warehousing in the UK and Germany. Its third-party logistics business saw revenues grow by 38.5%, and added three new contracts in Germany. At the same time, more than 2m fridges have now been recycled at its AO Recycling facility, and the recycled plastic it produces is now being used to make new products.
AO founder and chief executive John Roberts says: “Our results over this period have inevitably been affected by the constraints and uncertainty seen across our industry. We’ve materially cemented the progress of last year, with a step change in scale and consumer behaviour – and the fundamentals of the business are in place for sustained growth.
“We’re seeing more customers making repeat purchases more frequently across categories. Once they experience the AO Way, they keep coming back. Our outstanding operational capabilities are also being recognised by more and more companies who are now outsourcing their delivery services to us.
“We’re working hard to solve some of the current challenges that our industry is facing. We’ve recruited c. 500 new drivers and are working closely with our manufacturer partners so that customers can get what they need.
“Our AOers continue to deliver brilliantly, and our consistently world-class Net Promoter Scores and Trustpilot ratings are evidence of that. I’d like to take this opportunity to thank them for their amazing work, and I’d also like to thank our manufacturers for their ongoing support despite facing their own challenges during the period. While the short-term challenges are clear, I remain hugely optimistic about AO’s long- term growth prospects.”
Looking ahead, AO expects that the electricals market will continue to shift online, continuing a 20-year trend that was accelerated by the pandemic. It plans to continue to moving into new categories in order to serve its customers more often and across different items, enabling it to build long-term relationships. AO says its partnerships with brands are now strengthened through the shift to online – and as they start to take a digital first approach to selling while reducing their investment in stores.
In recent years it has redesigned its website in order to improve the customer journey and the way it showcases the products it sells, and it now plans to open a new London creative hub as it further invests in telling product stories.
Supply chain disruption
AO says it has seen reduced product availability across its industry as a result of supply chain disruption and a shortage of components, although it has worked with suppliers to ensure as many products as possible are available.
Sales of medium-sized domestic appliances grew by 4.4% in the UK but were constrained by driver shortages, resulting in longer delivery periods. Sales of smaller appliances, computing and gaming products grew by 8.4%, but audio visual sales fell by 22% in comparison with a strong period a year earlier. Service revenues in the market also fell as fewer products were delivered.
In Germany, growth was hit by growing competition and the growing costs of customer acquisition as rivals expanded their online capacity to respond to manufacturer demand. Customers have also moved back to more traditional ways of buying. The retailer has now cut back on its marketing efforts in Germany in order to focus on building its brand for the longer-term.
AO’s recycling revenues, from its AO Recycling business, grew by 71% – in comparison to a period a year ago when councils closed household waste and recycling centres. More than 2m fridges have now been recycled at its AO Recycling facility, and the recycled plastic it produces is now being used to make new products.
AO is a Top100 retailer in RXUK Top500 research.