ffrom £658,989 owed to Thurrock council, an east London art shop left £33,804 out of his own pocket, to 12,000 people whose furniture never arrived, creditors details who collectively lost nearly £187 million since the demise of sofa website Made.com are a snapshot of the pain caused by the bursting of the online commerce bubble.
Made was among a flurry of IPOs that raised billions of pounds for founders and private equity backers on the belief that the extent of the Covid-19 shift to online shopping would be permanent, only for those hopes to dash.
Between September 2020 and June 2021, a group of digital specialists including Deliveroo and Victorian Plumbing entered the London market, raising nearly £2bn for investors and a further £1bn to pump into their companies, despite many of them having suffered losses.
“There must have been a stampede to get the ratings they got,” says a retail boss. “People accepted the [notion] that Covid had caused a permanent change in the way people shopped and a level of excitement built up such that the ratings it got were absolutely insane.
Less than two years later, those stock market darlings have turned into flops. As major roads reopened, came the cost-of-living crisis, forcing shoppers to curb spending. GlobalData analysts predict that the peak of 26% of online sales reached during the lockdown will not be reached again for more than four years.
Made is the standard bearer of the unhappy digital dog troupe. Listed at a £775m valuation in June last year, she raised nearly £98m to sell shareholders and paid £10.2m in fees to her advisers. Just 16 months later, in early November, the group moved into administration with the loss of more than 300 jobs.
Having promised at its launch that the trading boom during the pandemic marked “a game-changer for the industry,” Made admitted to the administration it “couldn’t rotate fast enough” to meet changing consumer demand, all the while. inflation and a more unreliable supply chain.
Among other pandemic pounds offered on the London Stock Exchange, online cosmetics retailer THG, which at £5.4bn was one of London’s biggest tech floaters, held takeover talks after tumbling in value to around £814 million, with question marks over its growth story. Japan’s key shareholder SoftBank has written off £450m after selling its stake to founder Matt Molding and Qatar’s sovereign wealth fund.
At the other end of the scale, Minnow Parsley Box, the Scottish ready-meal company, it already has plans to exit the stock market and is looking to raise funds less than two years after entering the Aim market. Digital DIY retailer Victorian Plumbing, the largest-ever listing on the junior market when it joined in June last year at an £850m valuation, is now worth less than a quarter of that after a decline in profits.
Virgin Wines, takeaway app Deliveroo and consumer electronics website Music Magpie also saw shares tumble 63%, 77% and 88% respectively, after trading got tougher as restrictions were eased due to the pandemic.
Industry insiders say many consumer-facing listed companies are now looking to exit public markets if possible, although finding alternative sources of funding is proving difficult. Other victims may be following Made – and not just among those who sell online.
Fashion retailer Joules went into administration last week after overinvesting in hopes its strong pandemic-related sales would continue, while others seeking new funding include cut-price clothing chain Matalan.
“These [retail] companies are burning through cash and are very fragile in an environment [where] trying to raise money right now is next to impossible. For a credit committee to lend to consumer businesses is just too uncertain and there’s too much risk, so it’s causing a real pause. It’s really, really tough,” says one retail expert.
Then there are the bettors who have fallen in love with the dream of endless growth. Deliveroo convinced around 70,000 people to buy shares via its takeaway app, convincing them to spend £50m on its stock market debut. Their joint investment would now be worth just over £12m, with the average investor’s share falling in value from £714 to £170 this week.
In THG, key investors including BlackRock, who bought £300m of shares at the time of listing taking a 15% stake, and Janus Henderson, who bought £100m of shares, have now sharply reduced their stakes. holdings after seeing the value plummet.
At Made, blue-chip investors including Majedie Investments, Axa Investment Managers and pension fund NFU bought into the float, spending £50m, £30m and just over £22m respectively on shares, according to the prospectus, only to see their investments plummet.
There were, however, rich payoffs for the small army of lawyers, bankers and accountants who served the wagon. Made JP consultants Morgan Cazenove, Morgan Stanley and Liberum Capital, as well as boutique house OGG Consulting, shared fees of £10.2m.
JP Morgan has also landed a large payout as a key advisor on Deliveroo and THG floats, where banks and other advisors shared more than £62m in fees. Deliveroo’s shares have fallen by three quarters and Deliveroo by 86% since then. Goldman Sachs was on board both deals, along with Numis.
Made.com founders Ning Li and Brent Hoberman’s By Design fund each sold nearly £8m and £5m of shares, according to the prospectus.
Molding, the chief executive of THG, took in a whopping £54m and secured rights to properties for which he could raise £19m a year in rent, while Victorian Plumbing founder Mark Radcliffe took £212m £ and Music Magpie founders Steve Oliver and Walter Gleeson £22m.
Private equity and venture capital firms are also doing well. Backers of Made’s tech fund, Level Equity from the US and Partech from France, collectively made £18m on float, although they continued to see the rest of their investment fall into dust.
At THG, private equity group KKR sold its entire 20% stake in the float for £448m, while a number of private investors also did well, including former Tesco boss Sir Terry Leahy , which cashed in £17m worth of stock. Music Magpie raised £95m for backers led by private equity group NVM, which raised nearly £40m.
“Obviously they thought it was a good time to sell. There must have been an element of cynicism,” says a seasoned executive, who says he turned down at least one board position at a new entrant because he didn’t believe in his growth story.
“A reasonable person would consider that there is a risk that he is not sure about this [kind of growth] is it really sustainable and asked if this is a flash in the pan during the pandemic”.
GlobalData’s Patrick O’Brien says that while there was “an irrational exuberance around online retail stocks” during the pandemic, it was a confusing time for companies and investors. “It was really difficult to understand how consumer behavior would change at that time. We had no visibility into how long [the pandemic] it would last.
He says the current slump in online retail stock prices is based on another misplaced belief, that high street will permanently resume Internet sales.
A senior retail figure agrees investors should be careful not to learn the wrong lessons from the pandemic pound crash.
“One of the big mistakes of all bubbles is that they bring together many very different businesses. There are some pure and brilliant plays and some terrible ones. The fact that they mostly trade online won’t be what sets them apart [as] be good or bad”.