AO World capitalises on COVID-19 shift to online

Following today’s release of AO World H1 figures for 2020/21,

Zoe Mills, Senior Retail Analyst at GlobalData, a leading data and analytics company, comments:

‘‘AO World has produced a strong set of H1 results as it benefits from the shift to online during the height of the COVID-19 pandemic. With the UK online electricals market forecast to grow 22.0% in 2020, AO World is set to gain significant market share owing to its competitive proposition. While a temporary shift to online was to be expected amid store closures, it is evident in these figures that AO World has been able to maintain momentum as stores reopened, supported by consumer trepidation at returning to physical stores. Its share price has increased by around 4% in early morning trading as a result.

AO World had hoped that the closure of its Netherlands proposition on 31 March 2020 would be the right move to focus on the profitability of its German stores, and so far it has been proven correct with the electricals specialist recording an improvement in gross margin and anticipating a return to profit for this arm of its business from FY2021/22 onwards. Its sales in the region have also performed well but it must not be complacent. While the accelerated shift to online is expected to continue, as stores reopen and consumers feel more comfortable visiting physical stores, e-commerce will face challenges in 2021.

 

The online electricals specialist has faced some problems over H1, stating that it has seen a change in behaviour of some consumers in its mobile business, resulting in a negative impact on gross margin. This is a trouble that Dixons Carphone knows only too well and while AO World aims to mitigate risk, its acquisition of Mobile Phones Direct (MPD) may prove less fruitful than anticipated. AO World must instead place its focus on handset sales, where demand for popular brands such as Apple and Samsung proves more resilient, and shift its focus away from mobile phone contracts.

 

Continuing this momentum in H2 FY2020/21 will be essential as more consumers venture to the shops. Its move into physical retail via its tie-up with Tesco for six shop-in-shops could also prove to be rewarding as Tesco’s wide reach will boost its brand awareness. But with this six-month trial ultimately a very tentative step into physical retail, we are unlikely to see it have a significant impact on sales in the near future.”

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