Online retailer Gear4music falls to loss amid difficult economic backdrop
Gear4music shares slip as retailer crashes to a loss after soaring costs beat back revenue growth
- Britain’s largest online musical equipment retailer declared a £0.4m pre-tax loss
- Cost-of-living pressures in the UK hit demand for discretionary consumer goods
- Gross margins declined after the company cut stock and incurred higher costs
Gear4music slipped to a loss last year due to more challenging domestic economic conditions and extra costs from reducing inventory levels.
Britain’s largest online musical equipment retailer posted a £400,000 pre-tax loss for the 12 months ending March, compared to a £5million profit the prior year.
Total revenue grew by 3 per cent to £152million despite cost-of-living pressures in the UK hurting demand for discretionary consumer products.
Result: Gear4music declared a £0.4million pre-tax loss for the 12 months ending March due to more challenging economic conditions and extra costs from reducing inventory levels
The company had previously blamed weaker domestic trading on Royal Mail strikes delaying deliveries over the Christmas period, hot weather and the absence of Covid-related restrictions.
Sales were also impacted by the firm’s own-brand products experiencing stronger competition from Far East manufacturers selling into Europe through Amazon.
Because of slowing demand, Gear4music set about slashing stock, which it had built up the previous year for ‘precautionary and opportunistic reasons’, through price cuts and changing re-ordering levels.
Combined with elevated energy, labour and card processing costs, this contributed to gross margins declining by 220 basis points to 25.7 per cent.
Andrew Wass, chief executive of Gear4music, remarked: ‘Market conditions have continued to be challenging…and we are taking the appropriate and necessary actions to ensure our business is correctly configured, resourced and positioned strategically for long-term success.’
Following the release of its full-year results, Gear4music shares sank by 6.8 per cent, or 7p, to 95.5p on Tuesday morning.
Gear4music was one of the most noticeable lockdown retail winners, as homebound consumers sought to keep themselves occupied by improving their musical abilities.
Purchases of guitars, digital keyboards and home recording equipment all grew significantly.
To capitalise on the boom, the company bought percussion instrument maker Premier Music, whose drums have been played by the likes of Sir Ringo Starr, Keith Moon and Phil Collins.
It also acquired audio-visual equipment seller AV Online and opened three new distribution centres across Ireland and Spain to boost its presence in mainland Europe.
Yet trading began to slow down as Britain’s departure from the European Union caused disruption to shipping, and people started spending more time outside after Covid-related curbs were ended.
For the last financial year, the number of Gear4music’s active customers fell by 6 per cent to 865,000, while website visitors dropped by 2.3 million to 26.5 million.
Even though the group’s consumer base, turnover and profits remain above pre-Covid levels, its share price has dived by more than 90 per cent from its peak of over £10 two years ago.
Chairman Keith Ford said: ‘Customer demand across our markets remains volatile and difficult to predict, reflecting the continuing impact of geo-political and macro-economic uncertainties affecting consumer confidence across Europe.’