It’s that time of year when share tipsters start to issue their bets for the New Year. But the collapse of on-line grocer Farmdrop and recent profit warning from Boohoo (BOO) prompts me to think that one thing I will be avoiding next year is on-line retailers apart possibly from the gorillas already in that space.
Unlisted Farmdrop went out of business a few days ago so customers who were expecting deliveries of farm produce for Xmas won’t get them. Farmdrop is reported to have raised as much as $40 million in capital and has as many as 10,000 customers and 450 suppliers who will be having a threadbare Christmas. The company was making substantial losses based on its last filed accounts.
Farmdrop had competitors, as of course does Boohoo. I think entrepreneurs have realised that it is now very easy to set up an on-line shopping site using software such as Shopify, and there are in reality no barriers to entry. The products such as groceries or fast fashion are not unique but investors have been piling money into such businesses without thought as to how profits can be achieved. Companies have been spending enormous amounts on marketing on the basis that will get them to high enough revenue to cover their costs. But other companies are doing the same. Established players such as Boohoo will no doubt survive albeit at reduced profit margins as they will suffer a welter of small fish nibbling at their market share as the lure of apparent future profits draws in new entrants.
Physical retailers are not in a good position either with the Covid-10 epidemic resurging and forecasts being made of more lock-downs after Christmas. But they have at least moved to have on-line shopping options to a large extent, using their strong, well-known brand names and financial strength to take market share.
With personal taxes rising, and given the above, my tip for the New Year is to avoid retailers unless they have dominant positions or clear barriers to entry and definitely avoid small companies trying to establish themselves in already crowded internet markets.
Roger Lawson (Twitter: https://twitter.com/RogerWLawson )
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