AO is the surprise retail winner of 2020
We’ve all been buying fridges, wine and sparkly tops this year, judging by how the market has rewarded certain retail stocks.
There has been a lot of chatter about how alcohol sales have increased during lockdown, so it’s no surprise to see online specialist Naked Wines (WINE:AIM) become the second best retail stock in share price terms year-to-date.
Boohoo’s (BOO:AIM) ongoing success has also been well documented, with its young adult target market still buying new clothes despite not be able to enjoy a night out with friends.
Many readers might be surprised to see AO World (AO.) as the best performing retail stock so far this year. After all, this business has perennially disappointed since it joined the stock market in 2014 with progress in the UK clouded by losses in its European arm.
Its stock market success this year does make some sense. Home appliances will have seen a sharp rise in usage during lockdown and there is nothing worse than not being able to wash your clothes because the washing machine’s broken, or your fridge can’t cope with all the extra food being stored in it.
For all the criticism from investors who lost patience with the business, AO does have a good reputation for service which is very important from the customer’s perspective. People will return to reliable sellers such as AO when seeking a new appliance.
A 63% share price gain this year must be viewed in the context of AO’s shares having risen from a low base. Until late April 2020, the stock had been in falling trend since 2018 and a recovery last November was short-lived.
AO regained interest from investors on 12 May by saying it had grown market share with increased demand and sales since lockdown.
Many companies are incurring additional costs to keep staff safe so any joy over soaring revenues at AO’s forthcoming results on 14 July will have to be balanced by potential margin pressure.
A good comparative stock is Dixons Carphone (DC.) which has also experienced a sales boost from lockdown conditions. This business has really improved its customer service standards and has a leading market share for electrical goods.
While AO is a direct competitor, it is more associated with fridges, washing machines and dishwashers whereas Dixons is the go-to place for laptops and TVs.
Interestingly, Dixons’ shares are trading 35% lower than at the start of 2020, albeit they’ve been picking up in recent months. The company is likely to incur yet more losses on the mobile side of its business, but management are eager to top up product sales revenue with more income from repairs and customer credit as part of a new growth plan.
Both companies have a proposition needed in today’s world and there is a place for them to exist alongside Amazon. Dixons should focus on its shops being quasi sales and repair centres and AO should focus on rapid delivery and collection of unwanted items to feed its recycling operations.
There is little difference on product price between all three firms for electrical products, yet AO and Dixons can stand above Amazon by having extra services on top.