9th Jun 2022 11:05
(Alliance News) - After retreating from abroad, AO World PLC's future prospects depend on maintaining a foothold in its domestic market, though success for the electrical goods retailer may prove hard to come by amid a cost-of-living crisis in the UK.
AO World on Thursday said it will close its German business, potentially booking cash costs of up to GBP15 million in the process, and losing roughly 10% of group revenue.
The online retailer of white goods had kicked off a strategic review of the German operation back in January, as fortunes there weakened with pre-pandemic shopping trends re-emerging and the competitive landscape "intensifying". The German business also suffered from a "constrained supply chain".
"Having evaluated a range of strategic options during the review process, the board has decided that closure of the German business is the best course of action. This decision was based on the continuing deterioration in the outlook for the German business, as well as the board's responsibilities to shareholders and other stakeholders," AO World said on Thursday.
"The business will continue to trade for a brief period to facilitate a structured and orderly closure for its customers, suppliers and employees."
The German operation contributes about 10% of AO World's revenue. The company expects to incur cash costs between "nil and GBP15 million" due to the closure.
Exiting Germany means AO World can now "increase its focus on its leading online position in the UK electricals market".
The closure of the German unit follows a difficult period for AO World. In late-April, shares were hit when the company warned about supply chain issues and a squeeze on consumer incomes.
AJ Bell's Russ Mould commented that for years AO World had sought to replicate its UK success overseas, but a highly competitive marketplace has "defeated" the company.
"AO's future now depends on greater success in the UK, which will be very hard to achieve. Its proposition is appealing to consumers - competitive prices and good service levels. But the problem is that it makes such a tiny margin that simply shifting boxes from A to B will not create a business empire for AO. It is going to need to pull a bigger rabbit out of the hat to thrive," Mould explained.
AO World shares were down 5.0% at 69.60 pence on Thursday. They are down 72% in the past 12 months.
By Arvind Bhunjun; [email protected]
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