Online retail giant AO has announced that it is to exit the German market because of a “continuing deterioration in the outlook for the German business”.
In an official statement issued to the London Stock Exchange, AO said the decision followed a strategic review of its German operation that began in January as a result of “material changes to the local trading environment which have significantly impacted the business over the past year”.
AO said that these changes included an intensifying competitive landscape as customers returned to pre-pandemic of online shopping. It also cited a substantial increase in digital marketing costs and a “constrained supply chain”.
The AO board said that after completing the strategic review, it decided that the best course of action was to close the German business, in light of “the continuing deterioration in the outlook for the German business, as well as the board’s responsibilities to shareholders and other stakeholders”.
AO said that the business will continue to trade for a brief period to facilitate an orderly closure for its customers, suppliers and employees.
The board also said it wished to thank all of its employees in the German business for their hard work and dedication since its launch in 2014.
The German operation accounted for 10% of total group revenue, and AO said it expects the closure to incur costs of up to £15 million.
The statement added that AO expected to trade in line with expectations for the 2023 financial year.
Commenting on the move, analyst GlobalData said it believed the decision would protect long-terms prospects for AO.
GlobalData senior retail analyst Zoe Mills said: “AO World’s German arm of the business has been a drain on sales growth and with group revenue deteriorating in the last three months of 2021 and the UK electricals market forecast to decline by around 10% in 2022, it is evident that AO World has had to pick its battles – choosing to focus on its core UK business. Indeed, historically, the online electricals specialist has shown it is not afraid to cut ties with weak areas in its proposition, having closed its Netherlands operation in March 2020 after sales deteriorated in the region.”
She added: “While this closure has effectively halted plans for its European expansion announced by chief executive John Roberts just last year, this is a necessary move to ensure the longevity of the business. Indeed, there is still more to play for at home, having established itself as a destination amid the pandemic and online penetration set to remain almost 15% higher than pre-pandemic levels within the electricals market, there remains an opportunity to steal shoppers from the likes of Argos in 2022.”