Last week, the curtains finally came down on Made.com. The British online furniture emporium entered administration on Wednesday (9 November), axing more than 500 jobs and leaving thousands of orders in limbo.
The collapse of a major retailer would be notable at any time, but Made was seen as one of Britain’s biggest digital success stories of recent years. For much of the 2010s, no stylish millennial home was complete without one of its luxe velvet sofas, rattan lamps or mid-century cabinets. Buoyed by bumper sales during the Covid lockdowns, the company went public in 2021 at a £775m valuation.
So how did Next end up snapping up its website and intellectual property for just £3.4m barely a year later? As Made’s chief executive, Nicola Thompson, said in a statement this week, the company had been built for “a world of low inflation, stable consumer demand, reliable and cost-efficient global supply chains and limited geopolitical volatility. That world vanished… and we could not pivot fast enough.”
But it is not just Made that has found the post-Covid reality less than a bed of roses. Many of lockdown’s other fast-growing “digital darlings” are also struggling. Profits at online fast fashion giant Asos shot up 253% in the six months to February 2021 but it has reported a pre-tax loss of almost £32m this year. Another youth-focused clothing brand, Missguided, collapsed in August with more than £80m in debts.
Meanwhile, the share price of wine subscription service Naked Wines has tumbled 90%, mattress company Eve Sleep was rescued from administration by a more traditional competitor, and online grocer Ocado issued two profit warnings this year. None of the new wave of ultra-fast delivery startups, including Getir, Gorillas, GoPuff and Zapp, have yet turned a profit.
Experts point to three key trends driving the carnage: a crash in online purchases, inflation-driven logistics difficulties and an increasing investor focus on profit over growth.
Dwindling consumer confidence
With a captive audience shut indoors, online sales of furniture, DIY and home-delivery groceries boomed during the nationwide lockdowns, along with practically all other ecommerce categories. Huge sums of money flowed into the sector as companies expanded in anticipation of ongoing high demand: building warehouses, going on hiring sprees or buying up stock.
Many apparently thought the momentum would never end. “There was a lot of money sloshing around during the pandemic. It looked like the future was going to be entirely online,” says Adrian Palmer, professor of marketing at Henley Business School.
But while online purchases in the UK peaked at 37.8% of all retail sales in January 2021, they have now fallen back to 25.3%, just a few percentage points above pre-pandemic levels. “A lot of customers are realising that it’s more efficient to go to traditional shops,” Palmer adds. Meanwhile, as the UK faces into a recession, buying big-ticket items such as furniture online becomes less appealing.
“The smart retailers realised this was a blip and the world would go back to normal,” says Michael Ross, chief retail scientist at EDITED and author of The Customer-Base Audit. “The ones who completely reset and thought this was the new reality got a very nasty return to earth.”
That overconfidence has left many vulnerable in times of general retail and economic crisis. Recent figures from EY-Parthenon show 40% of all FTSE-listed retailers issued a profit warning in the past 12 months. More than 70% of those that issued a warning in Q3 cited weakening customer confidence.
Even Facebook owner Meta, which laid off 11,000 employees this week, was not immune to the hype. Its CEO Mark Zuckerberg admitted the social media giant had put too much weight on the “surge of ecommerce” during 2020 and 2021, leaving it failing to hit profit targets once advertising dried up.
Logistical difficulties
Adding to the perfect storm, the logistics of online shopping have quickly become more expensive. Record inflation and a tight labour market are driving bigger bills for shipping, warehousing, delivery and returns – all cornerstones of the internet model.
As a result, many digital-first retailers are short on liquidity at the worst possible moment. Amid supply-chain snarl-ups, Made struggled to fulfil orders under its ‘just-in-time’ model. When it later tried to pivot to a more stock-heavy strategy this summer, the brand ended up purchasing more inventory than it could afford to hold when consumer confidence faltered, plunging it into a cash crisis.
Logistical hurdles have also hit Naked Wines, which has seen profits lag behind its increasing sales. Analysts have blamed the higher price of everything from glass to packaging and shipping. At Asos, a new executive team is trying to see off these pressures with changes such as “nearshoring” production, introducing shorter buying cycles and slashing promotions, an analyst told retail magazine Charged.
But in the short term, we can expect to see ecommerce shopping perks such as free shipping and returns “quietly disappear”, says Alexander Graf, CEO of Spryker. “They were a result of there being so much competition: if you started to charge for shipment, then people would have stopped the purchase, but now [retailers] can’t afford not to charge.”
Rethinking digital growth
In some ways, the current landscape can be seen as a wider market correction against gung-ho growth using investor capital rather than profits.
“There will be a number of nervous companies and investors who piled into online startups thinking they’re going to be the next Amazon,” says Palmer. “Lots of investors are losing a lot of money.”
Many lockdown winners “had their valuations predicated on these exponential growth rates that were mathematically impossible”, Ross notes. In recent months, shareholders are taking a harder line. “Businesses that have been historically rewarded for top-line growth, are now being asked much harder questions around profitability.”
Businesses that have been historically rewarded for top-line growth, now are being asked much harder questions around profitability
Palmer believes businesses that have high borrowing will be the first to fail because of the additional squeeze from higher interest rates. But in general, others will follow the pattern of any economic downturn. “Those who are on the edge will be shaken out and taken over by the stronger. Old-world companies like Next have been waiting for these new internet startups to build a brand, go bust and then buy them cheaply.”
Graf adds: “In the long run, the online retailers that make it through will in fact have a stronger business… they will have really tight cost controls and better margins, and will face a market with fewer competitors.”
What’s certain is that Made will not be the last to fail in the post-Covid world. The writing is already on the wall for those who fail to adapt to the new reality.
Last week, the curtains finally came down on Made.com. The British online furniture emporium entered administration on Wednesday (9 November), axing more than 500 jobs and leaving thousands of orders in limbo.
The collapse of a major retailer would be notable at any time, but Made was seen as one of Britain's biggest digital success stories of recent years. For much of the 2010s, no stylish millennial home was complete without one of its luxe velvet sofas, rattan lamps or mid-century cabinets. Buoyed by bumper sales during the Covid lockdowns, the company went public in 2021 at a £775m valuation.
So how did Next end up snapping up its website and intellectual property for just £3.4m barely a year later? As Made’s chief executive, Nicola Thompson, said in a statement this week, the company had been built for “a world of low inflation, stable consumer demand, reliable and cost-efficient global supply chains and limited geopolitical volatility. That world vanished… and we could not pivot fast enough.”
