Made.com’s collapse is "both a one-off and an indication of more that is coming", said retail analyst Clive Black at Shore Capital.
The retailer, which revealed yesterday it is planning to suspend shares following a failed sale, had problems from the start.
Black believes Made.com’s valuation at the IPO stage over a year ago was “pricing in perfection that did not exist within or without the company."
An over-exuberance of Covid entrepreneurs, who believed the pandemic was the start of a new “structural change in the way that society would behave,” didn’t help the furniture company.
Consequentially, that over-exuberance led to an exaggeration of the importance of the online channel in retail penetration and “an inappropriate allocation of capital that corresponded with the impact of overly loose monetary policy that resulted in too much money was chasing too few assets, leading to irrational pricing and so a form of market failure.”
As restrictions eased, profitability and resilience were often absent in online players compared to multi-channel or offline retailers.
Macro conditions, such as labour shortages and Putin’s war in Ukraine have been particularly unfortunate for Made, Black notes.
Black points to the resilience of competitors, such as DFS and Dunelm, and wonders whether Made was on top of its supply chain, working capital and operating costs.
Looking ahead, Black believes the UK consumer economy is “tough and deteriorating” and has a new prime minister tasked with getting inflation under control.
Further downgrades to earnings are expected, with “liquidity squeezes and failures in the UK consumer arena over the next few quarters,” with the greatest pressure in discretionary spending, Black said.