Record trading reported by online electrical retailer

Lockdowns have heralded 10 years of change in 10 months, said the boss of Bolton-based online electrical retailer AO World today after the business experienced its strongest ever peak trading period.

In a trading update for the third quarter to December 31, 2020, which included the Black Friday sales event, the business experienced significant increase in demand driven by people working from home and switching to online purchasing in huge numbers.

In the three month reporting period AO recorded year-on-year UK revenue growth of 67.2% to £457.3m and of 77.4% to €73.6m in Germany.

The business is continuing to invest in its infrastructure to deliver higher levels of revenue including additional staff in warehouses, vehicles and drivers.

However, AO said it has incurred significantly higher costs associated with the operational challenges of working in a COVID-compliant environment, particularly in the reverse supply chain, and it has seen a slightly increased rate of cancellation of individual consumers’ long-term contracts in mobile and warranties, driven by COVID impacts on customers behaviour.

But it said it is delighted with how its investments in infrastructure and corresponding planning for the structural market changes have played out.

It views the final quarter, and the coming financial year with confidence as the structural shift to online is cemented in consumers’ minds by the outstanding service millions of new customers have received in 2020.

AO founder and chief executive, John Roberts, said: “I believe we’ve seen 10 years of change in 10 months, and experienced our strongest ever peak trading period.

“We backed ourselves by investing early in warehouses, vehicles, stock and people.

“This not only set us up to satisfy customer demand for electricals for the current crisis, but also for the longer term, as the structural shift to online becomes a permanent feature of the market in the UK and Germany.

One of our biggest achievements this period is to have our German business profitable throughout Q3.”

He added: “Our confidence in those investments has been rewarded by these exceptional levels of sales. We’ve seen how the short-term costs translate into a fantastic opportunity to drive lifetime value for millions more customers. We’re delighted to have earned their trust after their first purchase and their first experience of the AO Way.

“Now that customers have experienced a better, digital-first way to shop for electricals, I believe the majority will never look back. We intend to cement that change by raising the bar on our service and proposition in ways that only AO can deliver.

“We’ll continue to make the right decisions for our customers, partners, people and planet, too.

“I’m hugely proud of how AOers have responded to challenges as well as opportunities, providing amazing service to our customers during a record period.
“I’d like to thank the whole team for making it possible, including the 1,500 new recruits who joined us during 2020.”

Russ Mould, investment director at Manchester-based investment platform AJ Bell, said: “Today’s update from web-based white goods seller AO World is a reminder that while online retailers are better placed during the pandemic, there are still material costs to bear.

“Given electrical goods retailers with physical stores have been closed for long periods it is no surprise that AO World has enjoyed strong trading momentum.

“Electricals have arguably never been more important to us, particularly with a shift to working from home, kids being home-schooled and people spending more time indoors generally.

“Despite the unprecedented sales momentum it sounds like it will be a different story in terms of profitability as AO counts the cost of ramping up warehousing and delivery capacity as well as handling returns, all the while remaining COVID-compliant.

“A key question for investors to weigh is the extent to which these costs and benefits are a one-off.

“Will the structural changes accelerated by the pandemic continue to support growing market share for the business? Or will shoppers decide they’ll ‘AO let’s go’ somewhere else once we have returned to a measure of a normality?

“And with the investment in its infrastructure and processes made, will costs start to come down again?

“AO will certainly find the current financial year a hard act to follow in terms of sales growth and there will be plenty of attention on its trading through the course of 2021 to see if the position carved out through the coronavirus crisis can be sustained.”