AO World has said consumers are holding off on updating their mobile phones amid the cost of living crisis, a lack of technological innovation and the higher cost of network contracts.
UK consumers bought 13% fewer handsets with contracts in the last six months, forcing AO’s mobile phone business into a loss. Analysts at stockbroker Jefferies said they estimated that the worse than expected mobile phone sales would hit the online electrical goods sellers’ annual profits by about £4m.
Poor mobile phone sales contributed to a 12% slide in total sales at AO to £482m in the six months to 30 September. However, the company bounced back into the black, making pre-tax profits of £13m in the half year, after a loss of £12m the year before as the online specialist cut back on costs and stopped selling many unprofitable items.
Despite the mobile phones hit, AO said it expected to make profits of up to £33m up from previous guidance of £28m after the success of measures including introducing delivery fees on all items and cutting back on promotions. However, it now expects full year sales to decline by 10% compared with a previously pencilled in fall of about 2.5%.
John Roberts, the chief executive and co-founder of AO, said people were holding on to phones in order to save money: “The innovation curve on products is reducing and in a consumer spending squeeze phones are very expensive pieces of kit. The need to replace a phone is materially reduced while households have other priorities.”
Roberts said total sales at AO would continue to decline until early next year as the company was still editing out unprofitable product lines and “giving away market share”. He predicted sales would begin to increase early in 2024 as AO capitalised on the 3.5 million additional customers who had first used the company during the pandemic helped by strong reviews of its service and advertising.
He said shoppers were continuing to buy items they considered essential – such as air fryers, which are seen as cheaper to run than a traditional oven, while there was less interest in large TVs.
He said inflation was easing, but the price of technology was still going up and the company was aware of the potential for further inflation if the conflict in Gaza worsened and fuel and energy prices were pushed up again.