Made.com is the Covid trade come unstuck

It’s one thing for the fabric of a business to fray slowly over time and quite another for it to burst apart at the seams in little more than a year of public life.

Online furniture retailer Made.com falls into the latter camp. It floated in June last year. On Tuesday, it told investors that talks to find a buyer or further funding before the end of the month had come undone. On Wednesday, it stopped taking new orders.

There’s an argument that Made was merely an unlucky victim of various global trends. But shareholders should only buy that excuse if they are willing to swallow the line that the pandemic has forever shifted our shopping habits too. Its decline is a reminder of the dangers of assuming both that Made’s millennial market was exceptional and that high demand during the pandemic was not.

To be fair to Made and the banks and investors that brought it to market, the recent macroeconomic environment has not been in its favour. Freight costs rose roughly fivefold between 2019 and 2022. It built up stock levels to counter supply chain disruption that caused customer complaints about long lead times just as demand started to unwind.

Still, dwindling demand for big-ticket goods is the norm during downturns. Retailers always go under. Previous victims include Dwell, Habitat, MFI, ScS and Sofa Workshop.

What Made tried to argue was that it was different from rival furniture sellers — and that its customers were too. Made was “digitally native” with a “disruptive, asset-light, vertically integrated business model”. That was meant to justify a valuation of £775mn at its initial public offering for a business that made £14mn in pre-tax losses in 2020 rising to £31mn in 2021. It didn’t. Being digitally native at a time when consumers have returned to bricks-and-mortar stores has not been an advantage. A customer base with savings accumulated during Covid-19 domestic internment was an aberration.

The way in which Made was more like a modern tech story and less like a traditional retailer was its willingness to gamble on growth, its ability to find investors to fund it and its backers’ impeccable timing in selling down.

Growth was the reason to pile up stock in a category vulnerable to turns in the consumer cycle: long lead times meant lost shoppers and Made made it an express priority to shorten them. It was far from alone in taking that risk, but coming off a period of peak demand, storing up stock that was expensive to shift was a bad bet. The pursuit of growth is one of the things that helped Made burn through most of the £100mn it raised last year. While some of that money was used to pay off debt, access to more credit might have helped.

The broader question is what Made’s unravelling means for two particular UK markets: online retail and the stock exchange. Online-only groups have been hit harder than their “omnichannel” peers. That is plain from the share prices of everyone from Asos to Ocado. Millennial and Gen-Z consumers are still desirable, but no longer so much more coveted than their income-secure seniors.

For the stock exchange, the outlook is more sanguine. Last year, several bad businesses came to market with shaky valuations. But this happens every cycle, and in the US as much as the UK. It does not necessarily damage the London IPO market.

Still, investors who were around for the last tech bubble will recall Made co-founder Brent Hoberman’s mastery of timing with his previous venture, Lastminute.com. Made just squeaked through the IPO window before it shut last year. Given the risk of reputational damage for Hoberman, it might have been better for him, as well as Made’s public market investors, had the company held off. Those who invested at the time of the float might well feel they were stitched up.

cat.rutterpooley@ft.com