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AO World focuses on profitable growth as it closes its Netherlands business, and moves away from discount-driven sales

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AO World focuses on profitable growth as it closes its Netherlands business, and moves away from discount-driven sales

AO World says it is focusing on profitable growth as it announces the closure of its loss-making Netherlands business and moves away from a strategy of discounting in order to sell.

 

Instead, AO will concentrate on moving its German business towards profitability while centralising functions including ecommerce and marketing for all its operations to the UK.

 

The retailer is continuing to develop its wider ecosystem of interlinked business, providing new services to new clients. It now promises next-day, nationwide, seven-day a week deliveries to housebuilders, resulting in orders for more than 3,000 plots. It is delivering on behalf of clients including grocer Aldi, mattress business Simba and furniture business The Cotswold Company, having lost a contract with Argos. Its plastics recycling plant is now expected to come into operation in the second half of 2020.

 

In August it established its own mobile phone division through the acquisition of Mobile Phones Direct, now rebranded as AO Mobile.

 

The update came as AO World turned over £470.1m in the half-year to September 30. That’s 16.3% up from £404.2m a year earlier. Pre-tax losses narrowed to £5.9m from £10.9m a year earlier. UK revenues came to £402.7m (+4.5% LFL) – including £311.2m from product sales, £16.1m from services, £61.8m from commission – mostly as a result of its August acquisition of Mobile Phones Direct, £6.8m from logistics and £6.8m from recycling. European revenues came in at £67.4m (-3.4%).

 

The retailer said that UK product sales growth of 6.8% came as it sold more major domestic appliances (MDAs). The total also includes strong sales growth through marketplaces including Amazon and eBay and through its B2B AO Business operation. Commenting on its marketplace sales, it said: “We believe these are new customers to the group and do not cannibalise traffic that would otherwise shop with ao.com." Revenue from services grew by 13.9% as the retailer introduced installation services alongside delivery.

 

John Roberts, AO founder who returned to the business as chief executive in February, said: "These results were achieved during a period of significant change for the business where we were focused on laying the foundation for disciplined, long-term growth. There are encouraging green shoots of profitable growth across our UK business, including within our core MDA (major domestic appliances) offer and we will continue to invest to drive this further.

 

"Our relentless focus to accelerate profitability in Europe continues and as part of this, we have today announced the closure of our Netherlands operation. This will enable us to concentrate on the transformation of our German business, where we have increased confidence in, and visibility of, the three core drivers of the business model that will put us on the path to profitability."

 

Commenting, Zoe Mills, retail analyst at data and analytics business GlobalData, said: "AO World’s international business has fallen into negative territory in H1 2019/20, after consecutive years of strong performance. With its international business less mature than its UK proposition, this channel has always outperformed the UK business, however, with revenue declining by 2.9% (on a constant currency basis), AO World has taken the decision to shutter its Netherlands proposition, and place its focus in Germany where it believes there its greater opportunity to thrive. This will continue to have a detrimental impact to sales performance outside of the UK in the short term but is the right move to ensure its international proposition can become profitable in the long term.’’

 

AO.com is a Leading retailer in IRUK Top500 research.

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