Opinion: Etailers look primed for success in the City

Online sales might finally be showing signs of maturing after years of exponential growth, but the share prices of some of the UK’s listed ecommerce players could still have plenty of headroom to move into.

Fashion pureplay Asos’ stock has climbed more than 8% to 7,446p since the turn of the year, buoyed by “exceptional” performance in its core British market over the Christmas period.

UK sales jumped 23% to £300.9m in the 20 weeks to December 31, driving group revenues up 30% year on year to £808.4m.

Ocado’s stock is rising at an even quicker rate – up 24% since January 2 – thanks not so much to Asos-style sales growth, but to its burgeoning Ocado Solutions arm.

Although it is expected to post a rise in full-year retail revenues from its grocery business when it updates the City next week, investors are jumping on the Ocado bandwagon as a result of its intellectual property potential.

As it presses ahead with its strategy to become “a global player for solutions in grocery retail”, the business has penned eye-catching deals to license its technology to French player Casino and Canada’s second-biggest grocer Sobeys.

“Given the performance of Asos and Ocado, it is perhaps surprising that the list of high-performing pureplays was headed by a more unlikely candidate in January – AO”

The US and continental Europe both represent regions ripe for further partnerships and, therefore, additional share price growth.

Given the performance of Asos and Ocado, it is perhaps surprising that the list of high-performing pureplays was headed by a more unlikely candidate in January – AO.

As veteran analyst Nick Bubb highlighted this week, the electricals etailer’s share price has swelled 33.8% to 144p at the time of writing, with Numis’ target price of 200p suggesting there is more to come.

Analysts may be encouraged by the opportunity from its European business, which grew ahead of schedule in its first half, but performance in its homeland also remains robust – UK sales advanced 11.4% in the three months to December 31, despite a challenging market.

But the etail trio face a tough challenge to maintain such rapid growth throughout the remainder of the year.

Sober outlook

AO boss Steve Caunce himself warned earlier this month that he was “mindful of the uncertain economic outlook” in the UK – cautionary tones about ecommerce that were mirrored by data from IMRG Capgemini.

According to their latest e-Retail Sales Index, online sales grew 12.1% year on year in 2017.

Impressive that may be, particularly when set against the troubling picture on the high street, but it was below the anticipated 14% increase.

And etail revenues are only predicted to climb 9% in 2018, a figure that would represent the first year of single-digit ecommerce growth since online shopping burst onto the British shopping scene.

“Yet even by investing in the right technologies, be it responsive websites, AI, voice ordering, or whatever 2019’s next big thing may be, etailers will not guarantee success”

But if, as IMRG Capgemini suggest, we can expect “a new stimulus to be entering or proliferating the market during 2019”, this year’s expected slowdown in online sales growth could prove to be merely a minor bump in the road.

Yet even by investing in the right technologies, be it responsive websites, AI, voice ordering, or whatever 2019’s next big thing may be, etailers will not guarantee success.

In a world where the increasingly demanding customer is king, businesses cannot allow themselves to lose sight of the basics.

Launching all-singing, all-dancing websites and adopting the latest technology will prove futile if retailers do not get the proposition right, ensure availability is robust, focus on customer service or build a loyal and engaged shopper base.

Whether operating online or offline, it is the businesses that achieve those goals that will stand the best chance of success in the City.