The history of retail is littered with failed attempts to expand into foreign markets. Think Tesco in America, Wal-mart in Germany or Sainsbury’s in Egypt. But that hasn’t put off AO World founder John Roberts from taking a punt on continental conquest. The online retailer announced today that it’s planning to start selling white goods in the Netherlands from early next year.
This comes despite its one year-old German business causing some pecuniary headaches. High marketing and administrative costs there meant that AO’s European business made a £10.2m loss for the six months to September 30. A small profit in the UK wasn’t enough to save the mothership from going into the red as a result – the group made an £8.9m loss compared to a £0.9m profit last year.
There is, of course, a price that any business has to pay to expand into a new market. But not every firm is willing to sacrifice short term profits in order to do so. Roberts seems unperturbed by the risk. ‘We... remain confident that our business model and customer proposition are working as well on Mainland Europe as they have in the UK,’ he said.
The obvious role model for AO World’s ‘expand now, make a profit later’ strategy is the mother of all online retailers, Amazon. Like Jeff Bezos’ behemoth, Roberts’ firm can justify expensive foreign forays by pointing to rapid revenue growth – up 21.7% to £264.3m – and the relative ease with which online retailers can clone their domestic successes abroad.
Roberts will surely hope AO World can emulate Amazon in hard metrics, not least in its sustained share price growth. So far, unfortunately, investors haven’t given AO World quite the same faith. Its stock fell 14.7% this morning to 139.9p on the news, having now lost nearly 60% of its value since February.