Interview: How returning AO.com boss John Roberts is shaking up the sector

“I’m absolutely loving it,” John Roberts beams, reflecting on life back in the hot seat of the pureplay he founded 20 years ago, AO.com.

The charismatic entrepreneur may have only returned to the helm of the online electricals retailer in January, but he has wasted little time restamping his authority and enthusiasm back on the business.

Having played his part in trimming AO’s adjusted EBITDA loss to £400,000 in the year to March 31, down from £3.4m the previous year, Roberts is now focusing on building an “ecosystem” to grow the business beyond its retailing roots.

AO is piloting white goods rentals through a partnership with housing associations, offering its logistics services to third-party businesses, investing in Europe’s biggest fridge recycling plant and mulling a move into subscriptions.

The retailer’s most recent initiative was to launch a “game-changing” mobile phone division – borne out of the acquisition of Mobile Phones Direct in December – throwing down the gauntlet to the likes of Dixons Carphone.

AO-mobile.com offers a host of contract, SIM-only and handset-only deals across four networks. The business claims its “no stores” model allows it to offer better value than its traditional high street-focused rivals.

Rolling out to “more categories into more countries” is one of the four strategic priorities Roberts has pinpointed since his return in January.

He also wants to fix its struggling European business, where losses widened again last year, despite a spike in sales.

Expanding its third-party logistics business to secure more partners is equally high on Roberts’ agenda. AO already delivers Aldi’s eclectic range of general merchandise products to its stores and works with the likes of mattress-in-a-box firm Simba, Cotswold Furniture Company and is the sole UK distributor for Chinese electricals manufacturer Hisense.  

Perhaps most important to Roberts, though, is “getting the culture and mindset of the business right”.

“Sometimes you have to take a step away from something to realise how much you miss it and, in this case, how much it misses you,” Roberts explains.

“The plan we set out was to change the mindset – we wanted to have a growth mindset – and we did that within two weeks.”

Although that thinking has come from the very top of the organisation, Roberts has given renewed confidence to his senior leadership team to help deliver change. He says he has taken AO back to being an “informal” company by stripping out the “politics that go with a siloed business”.

“This is not the John Roberts Roadshow,” he jokes. “This isn’t ‘I’ve come back, I’m running every part of the business’. 

“We’ve got strength in depth in our business. We have an amazing team that runs the business right across the different areas.”

Even so, restoring AO to growth mode will be no walk in the park. To help it achieve that aim, Roberts is eager for the business to “disrupt” itself, partly through relationships it hopes to create with start-ups through the AO Innovation Lab.

“The best thing about our business is how fast you can make things happen, and the worst thing about our business is how fast things happen to you,” Roberts says.

“I think it’s very, very important that we disrupt ourselves. I spend a lot of my personal time out in the world looking at who’s doing what.

“I believe start-ups are often the most disruptive because constraints create innovation. Once it gets corporate it tends to lose a bit of its soul and energy.”

The AO Way

In a thinly veiled swipe at his successor-turned-predecessor Steve Caunce, Roberts says the business has achieved more on that front “in the last six months” than it did in the last “two or three years”.

“We’re getting through things with pace and energy across the whole business,” he suggests.

Sitting in an office at one of AO’s warehouses in Crewe, Roberts taps away on his iPad before revealing a diagram of its “ecosystem”, which maps out the various arms of the business.

“What happens to every fridge or freezer that fails in a supermarket? 100% of them are recycled illegally”

John Roberts, AO.com

Roberts is particularly proud of the etailer’s recycling credentials and its rental service, both of which key into his vision to do things “the AO Way”. The business has a mantra of “treating everyone like your mum and making your nan proud”, through initiatives that represent “the right thing to do”.

The rental trial it launched alongside two housing associations in April allows residents to hire white goods for as little as £2 a week. The retailer is still testing the scheme, but is already renting out more than 700 washing machines, cookers and fridge freezers across England and Scotland.

“The difference [the rental service] makes to people’s lives is incredible,” Roberts says. “There are 5.4 million homes in social housing. Take L&Q, which has about 100,000 homes in London where the average household income is £14,000.

“When those people are spending £10 a week on ‘rent-to-own’ washing machines and fridge freezers, they can’t afford it. People can pay £2 per week instead of £10 per week – if it breaks, we will come and repair it or replace it at our cost, which is an AO guarantee.”

Similarly, AO has ploughed £10m into building a 75,000 sq ft recycling plant in Telford, the first site of its kind in more than 10 years when it opened in 2017. Equipped with a mammoth machine named Big Bertha – painted in the same shade of AO green as Roberts’ now-famous belt – the facility has the capacity to break down 700,000 white goods every year, a fifth of the 3.5 million appliances thrown away by UK households. All recycled plastic, metals and foam are sold to manufacturers, with the plastic used to make items such as plant pots.   

Roberts admits AO invested in the plant as a result of legal obligations but hits out at retail rivals for failing to take similar action.

“Everyone else just goes: ‘Yeah, I have legal obligations, but am I able to wriggle out of those or do I take those obligations seriously?’” Roberts says.

“What happens to every fridge or freezer that fails in a supermarket? 100% of them are recycled illegally because we’ve got the biggest machine and we can’t take them.

“Nobody talks about it and that’s the reason why 50% of [refrigerators in] the whole retail industry – we think – are recycled illegally.”

The etailer’s next big play could be into the world of subscription services, although the finer details of such a plan are yet to be decided. Roberts is mulling a move to offer maintenance, appliance fittings and rental options as part of a monthly package designed to make “everything in the home much more seamless”.

“To the question of ‘Are we going to do a subscription service?’, my philosophical answer to that question is yes,” Roberts says. “When, how and all questions thereafter are still to be answered.

“But philosophically, we want to be the partner that you trust to step over your threshold in your home, for almost any category you want to buy.”

Continental concerns

Despite these fresh ideas and innovation, the electricals specialist has caused a few unwanted sparks along the way, particularly in its bid to grow in its two overseas markets, Germany and the Netherlands.

Losses in its non-UK business widened to €31.3m (£27.8m) from €29.6m (£26m) in the year to March 31, despite a 32.2% spike in sales.

Roberts, who plans to update the market on European progress in November, candidly opens the door to a potential closure or sale of the division, admitting AO “won’t have a European business” in the years to come if it cannot fix its ongoing problems.

“Are we going to go into Brexit meltdown? Nobody knows. We’ve done all the supply chain planning we can possibly do, and I don’t think we could be any better prepared”

John Roberts, AO.com

Roberts is confident he can do so and is “pleased with the progress” made so far, after identifying what had gone wrong. He suggests AO made some “fundamental mistakes” by giving too much responsibility overseas to an “immature team who didn’t know what they were doing”, and thinks it focused too heavily on pricing – a strategy it has now “tapped out” of. 

Fulfilling its bold delivery promises caused further issues on the continent. “From a logistics point of view, we made a very brave move and decided to do our own logistics,” Roberts explains. 

“Germany is bigger than the UK, so imagine in the UK starting a business and offering national next-day delivery on your own fleet and you’ve not sold anything yet. That’s what we did. So those first few deliveries were quite expensive,” he adds with a wry smile. 

Roberts is matter-of-fact about what the future holds for the European arm: “It will either work or it won’t.” 

Brexit uncertainty

Those are far from Roberts’ only European concerns. Like all British businesses, AO is grappling with a Brexit headache as it attempts to plan for various scenarios ahead of October 31. Boris Johnson has insisted Britain will leave the EU on that date “come what may”, bringing the prospect of a no-deal Brexit firmly into view.

Back in June, Roberts said AO had shelled out £15m on stockpiling white goods – excess stock it has now sold – ahead of the initial May Brexit date. Taking such measures this time round would put much more of a strain on AO’s supply chain, coming ahead of the peak Black Friday and Christmas period.

Retailers such as Tesco and Sainsbury’s have publicly lamented the timing of a Halloween Brexit for similar reasons, falling in the crucial golden quarter when excess capacity in the supply chain is already at a premium. The fear, according to Sainsbury’s boss Mike Coupe, is that an October no-deal could spark supply shortages across certain food categories, as well as toys, making for a “disruptive” Christmas.

Despite calling Brexit a “pain in the arse”, Roberts remains slightly more sanguine.

“Practicality has an amazing way of reigning,” he says. “If you need a fridge, you’re going to get a fridge, aren’t you?

“Are we going to go into meltdown? Nobody knows. We’ve done all the supply chain planning that we can possibly do, and I don’t think we could be any better prepared for all the different scenarios.

“By every economic indicator in this country – despite interest rates being on their arse and despite exchange rates having crashed – we are still economically doing very well.

“We’ve got wage inflation, never had better employment rates and yet the consumer is displaying recessionary behaviour as they wait and see.”

But Brexit nightmares aren’t keeping Roberts awake at night. “Literally nothing” is, he insists – other than his new puppy.

Despite the challenging retail backdrop, Roberts is banking on the growing “ecosystem” steering his business through the turbulent landscape in “the AO Way”.