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AO World reviews its German business as shoppers return to pre-pandemic buying habits

Image courtesy of AO

AO World says it is reviewing its German business at a time when competition and costs in the market have risen while shoppers have returned to their pre-pandemic buying habits.

John Roberts, founder and chief executive of the online electricals retailer, said during the second UK lockdown that he expected the electricals market to have shifted online for good, with predictions that both its UK and German businesses would prosper as a result. But today’s update suggests that change may not be a lasting one in Germany.

The update comes as AO World reports group sales for the first nine months of its year – to December 31 – are up by 58% compared to two years ago, but down by 3% on last year. Within that, UK sales are 58% up on two years ago, and 1% down on last year, while sales in Germany were 67% up on two years ago, but 8% down on last year.

Sales in the third quarter of the year alone were 45% up on two years ago – 47% ahead in the UK and 35% ahead in Germany. But compared to last year – when Christmas quarter sales were pushed online by Covid-19 trading restrictions and lockdowns – group sales were 14% down, UK sales were 12% down and Germany sales were down by almost a quarter (24%).

Today, AO said in a trading statement: “Our German business is being significantly impacted by a number of recent material changes to the local trading environment: competition in the online market has intensified whilst online penetration has returned to pre-pandemic levels; digital marketing costs have substantially increased against pre-pandemic levels; and supply remains constrained. We expect these trends will continue for the foreseeable market in the German market.

“The board is focused on maximising shareholder value, and as a result of the aforementioned factors, the group has decided to commerce a strategic review of its German business, which will evaluate a range of options. The results of the review will be announced in due course. We remain confident about AO’s long-term growth prospects, driven by the strength of our proven business model, the quality of our customer proposition and the long-term market trend towards online migration.”

The retailer says it still expects to hit its full-year trading estimates. In a trading statement for the first half of the year, published at the end of October, it said its growth had been affected by shortages of delivery drivers and by supply chain disruption. And in November, when it published its first-half results, it lowered its short term sales expectations to a range from flat to a 5% fall, in the light of a softer than expected peak trading season. It also said earnings would come in at between £10m and £20m. At the time, it said it had cut back on marketing efforts in the German markets to focus on building its brand for the longer-term in the light of customers’ return to more traditional ways of buying.

AO is a Top100 retailer in RXUK Top500 research.

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