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The Hut Group looks to automation to offset the effects of rising costs and inflation

Image courtesy of THG

Ecommerce brand business the Hut Group (THG) says that automating its logistics while cutting costs will help it to offset the effects of higher inflation in the economy. The company also says in today’s third-quarter trading update that product availability is high ahead of peak trading, thanks to early buying, and that plans to spin out its fast-growing Ingenuity Commerce division are on track for the next financial year. 

THG says the price of commodity materials, logistics and labour have all risen as a result of inflation, but in today’s statement it says: “Management believes the impact of the recent inflationary environment and rising commodity costs can be largely offset by increased logistics automation and an ongoing cost improvement programme.” It therefore believes that its earnings before interest, tax and one-off costs (EBITDA) will be unchanged from previous forecasts in its current financial year. Automation is most likely to be in its warehouse, although retailers including Ocado are 

THG says its peak trading product availability is high thanks to early buying and production. Inflation has continued to be a factor in business areas from logistics and labour to product prices. But the business says its focus on cost control and increased automation has helped it to mitigate those pressures. 

THG also says more brands are choosing it to operate their ecommerce businesses. In the third quarter of the year it won 44 new clients in a range of sectors. Some are replatforming from existing solutions while others are new launches. Its roster now includes Japanese beauty and household goods conglomerate the Kao Group, whose brands include Molton Brown, on a five-year multi-brand agreement covering a number of territories including the UK.  At the same time 59% of its third quarter revenue was recurring, and the retailer now has an order book of more than 280 new websites for existing clients. That will take the number of live websites that it operates increase from 163 to 400 by the end of 2022. THG expects Ingenuity Commerce revenues to grow by between 20% and 25% to between £108m and £112m in the 2022 full-year. Its plans to separate out THG Ingenuity remain on track for the first half of its next financial year. 

The updates came as THG reported group revenue of £507.8m in the quarter to September 30 2021  was 38% higher than a year earlier, and 93.8% higher than the same period in pre-pandemic 2019. Sales in its THG Beauty division came in at £247.6m, 57% higher than last year, while its THG Ingenuity division – its technology platform business – saw sales rise by 44.1% to £51.1m. Within that, revenues at Ingenuity Commerce, which runs ecommerce operations on behalf of customer brands, reached £11.7m, 131% up on last time and 526.8% up the same period in 2019. Revenue was also up in its nutrition (+9.5%) and on-demand (+25.3%) divisions.

In the first nine months of the year, revenues reached £1.5bn, 39.2% up on the same time last year and 90.4% up on the same time in 2019. The retailer now expects full-year group revenue to be between 35% and 38% higher than the previous year. 

THG acquired Cult Beauty in August and says it has now migrated it to the Ingenuity platform ahead of schedule, where improvements so far are reported to conversion rates (+30%), average order values (+6%), page load times (+36%) and lower technology cost to serve. More than 11,500 Advent calendars sold in two hours. 

Matthew Moulding, THG chief executive, says: “We have delivered a strong trading performance in Q3 and enter our peak trading period with confidence. The recent successful migration of Cult Beauty onto the Ingenuity platform is testament to the resilience of the infrastructure and the expertise of our digital talent. In under 10 weeks we have seamlessly migrated Cult Beauty, whilst delivering significant website and customer user-experience improvements at the same time.”

Board changes

SoftBank managing director Dr Andreas Hansson is joining the THG board after SoftBank took a $730m stake in THG in a joint venture deal earlier this year. The deal looked to see the Ingenuity arm of the business spun off within 15 months. 

Dr. Andreas Hansson, THG non-executive director, says: “I am delighted to be joining the THG Board. Since our initial investment, the technological capability of Ingenuity has proven compelling for several portfolio companies. There is a clear need for a global, purpose-built and end-to-end ecommerce platform. We believe that Ingenuity has the right suite of products to serve this market, and we continue to be confident about our investment in THG and the Ingenuity investment opportunity.” 

THG is now looking for a new independent chair for the business ahead of a move to the premium market of the London Stock Exchange. 

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