AO World sees shoppers cut back but spend more on energy-efficient goods

The online electrical goods retailer posted pre-tax profits of £7.6m for the year to March 31 against losses of £10.5m the previous year.

Online electricals retailer AO World has revealed it is to close its German business after eight years and focus on its UK operations (Alamy/PA)

Online retailer AO World said cash-strapped consumers were reining in their spending on non-essential electricals, but splashing out on more expensive energy-saving white goods to help cut power bills.

AO founder and chief executive John Roberts told the PA news agency the group has “not been immune” to the consumer spending clampdown, but that shoppers are prioritising replacement of white electrical items over other discretionary spending.

He said: “The vast majority of our market is for distressed purchases, where a buyer needs to replace a product.

“You might not decide to go out to dinner if your household spending is under pressure, rather than not having a fridge freezer.”

He added that the group was seeing a trend for consumers to splash out on more expensive white goods to ensure they are more energy efficient, in particular for fridge freezers, tumble dryers and cookers.

He said: “In previous downturns, people might buy a cheaper fridge freezer but this is the first time we’ve seen a shift to energy-efficient products.

“Consumers are investing more in products to save in the lifecycle through energy efficiency.”

The comments came as the firm revealed it swung to an annual profit thanks to cost-cutting efforts, and said it will return to sales growth over the year ahead.

The group posted pre-tax profits of £7.6 million for the 12 months to March 31 against losses of £10.5 million the previous year.

But revenues slumped 17% to £1.4 million over the year after stripping out loss-making sales and as weak shopper confidence affected demand for white goods amid the cost-of-living crisis.

AO World said it is “confident” of returning to sales growth by the end of the financial year to next March and that it will start “prudently” investing in the business again.

The significant improvement in our profit performance speaks for itself and has been achieved by focusing on our core strengths and simplifying our operations

John Roberts, AO World

Mr Roberts said: “The significant improvement in our profit performance speaks for itself and has been achieved by focusing on our core strengths and simplifying our operations.”

He added: “Looking ahead, we intend to continue with this focus whilst also retaining the flexibility to drive growth through disciplined investment at the right pace and at the right time.”

The group said its overhaul included a “significant” reduction in its workforce, particularly affecting senior and middle managers.

It also closed a number of offices and moved to remote working across some areas of the group.

The performance turnaround comes after AO World slumped to a £12 million loss in its first half, with shares hammered last year following a series of profit warnings as the cost crisis hit consumer spending on white goods, and due to labour shortages and supply chain disruption.

The company started its turnaround plan with a £40 million fundraising round last summer in a bid to strengthen its balance sheet amid fears of a cash crunch.

AO has since closed its loss-making German operation as part of the shake-up and has launched action to save at least £30 million a year by 2023-24.

The firm has also ditched unprofitable products while introducing delivery charges and cutting cashback incentives to reduce the cost of sales.

We believe the best businesses are often defined by what they decide not to do, rather than always just chasing every opportunity

John Roberts, AO World

Mr Roberts said: “Inevitably these actions have cumulatively reduced sales, but we believe the best businesses are often defined by what they decide not to do, rather than always just chasing every opportunity.

“Rationalisation and simplification also meant that we needed fewer people. We had to say goodbye to a number of AOers, which is never an easy decision but nonetheless a necessary one.

“While the economic element of those choices may have been relatively straightforward, the human element was, of course, much harder.”

The results come after Mike Ashley’s retail empire Frasers recently bought an 18.9% stake in AO World worth £75 million, which followed two years of talks with between the pair regarding a potential deal.

Frasers said the move would pave the way for a “supportive, strategic partnership” between the groups.