Electrical retailer AO backs ‘digital first marketing’ as supply chain crisis bites

Electrical retailer AO says it is investing in “digital first marketing” and brand awareness as it looks to build on success amid the wider supply chain crisis.

Total group revenue rose by 6% to £759.6m for the six months to 30 September, compared to 2020, and by 67% on a two-year basis. In the UK, total revenue increased 7.2% to £661m compared to last year, which the business attributes to higher average product pricing and “good growth” in selected business lines. This figure is up 65% on revenue generated pre-pandemic in 2019.

In AO’s German business, revenue fell by 2% to £99m due to reduced product revenue in a “highly competitive” market. Overall, the group made an operating loss of £11m during the half year period.

Over the six months, AO attracted more than 780,000 new customers, while the business also saw “notable step changes” in post-Covid repeat purchase rates. The business now boasts 300,000 Trustpilot ratings, averaging 4.6 out of five stars, and a net promoter score averaging more than 80.

In the UK, the retailer spent £22.5m on advertising and marketing in the six months to 30 September, equivalent to 3.4% of revenue for the country. In Germany, spend on marketing reached £4.5m, or 4.5% of revenue.

AO explains that in the UK advertising and marketing costs increased as manufacturers “increasingly supported digital first marketing”, leading to what it describes as increased competition for “clicks per customer” as companies sought to build market share online. In addition, the business increased spending on brand awareness over the six-month period.

The company now expects capital expenditure costs will increase during the second half of the year, as it commences spend on “marketing-related activities”, including a new creative studio in London.

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AO diverted much of its marketing energy into the German market over the past six months, having extricated itself in December 2020 from what it describes as an “onerous marketing contract” totalling £1m.

The brand says that traditional retailers in Germany are waking up to the online opportunity, which has increased competition levels and ramped up the cost of digital marketing. AO claims that given it is relatively new to the country, having launched in 2014, there is a “fundamental need” to invest in raising the profile of the brand. As a result, AO has increased its marketing investment to build brand awareness through SEO, PR and its first TV ad for years during peak trading.

Looking ahead, the business has seen UK growth impacted by the nationwide shortage of delivery drivers and ongoing global supply chain disruption, alongside facing increased competition in the German online market. The peak trading period is now “significantly softer” than AO anticipated just eight weeks ago, meaning the business expects group revenue to range from flat to down 5% year on year.

“We’re seeing more customers making repeat purchases more frequently across categories. Once they experience the AO Way, they keep coming back,” says founder and CEO John Roberts.

“Our outstanding operational capabilities are also being recognised by more and more companies who are now outsourcing their delivery services to us. We’re working hard to solve some of the current challenges that our industry is facing. We’ve recruited c.500 new drivers and are working closely with our manufacturer partners so that customers can get what they need.”

Playing a significant role in the future marketing strategy will be AO’s sponsorship of the Manchester Arena. The five-year deal, confirmed in September 2020, enables AO to offer customers exclusive access, tickets and experiences. The rebranding to the AO Arena marks the first time the venue has had a naming rights sponsor since 2014. As part of the redevelopment plans, AO plans to make the arena one of the lowest carbon venues in Europe.