The symbol of the pandemic punt that popped post-Covid

The details of creditors who lost nearly £187m due to the collapse of, ranging from a Thurrock council owed payment to an east London art shop that left out £33.804 in their pocket to 12,000 people whose furniture never arrived are a snapshot of the pain caused the burst of the online retail market bubble.

Made was one of a number of stock market listings that raised billions for private equity backers and founders. They believed that the Covid-19 move to online buying would last forever.

A clutch of digital specialists, including Deliveroo, and Victorian Plumbing, floated on London’s stock exchange, raising nearly £2bn in investors’ funds and another PS1bn to fund their businesses, despite many of these companies making losses.

One retail boss says that there must have been a stampede in order to obtain the valuations they received. “People believed that Covid caused a shift in how people shop and that excitement led to crazy valuations.

Two years later, these stock market darlings are no more. The cost of living crisis caused shoppers to cut back on spending as high streets reopened. GlobalData analysts predict that the lockdown’s 26% peak in online sales will not be reached again for four years.

It floated in June 2013 at a value of £775m and paid its advisors £10.2m in fees. The group was sold in November last year, 16 months after it had been floated at a valuation of £775m. It also paid out almost £98m in fees to its advisers.

After promising at its float that the boom in trading during the pandemic would be “an inflexion point” for the sector, Made admitted to the administration that it could not “pivot fast enough” to address changing consumer demand and inflation.

The London Stock Exchange offered other pandemic punts. THG online makeup retailer, which was valued at £5.4bn, was one of the largest London tech floats. However, there were questions about its growth story and value. After selling its stake to Matt Moulding, founder of SoftBank of Japan and Qatar’s sovereign wealth funds, £450m was written off.

Minnow Parsley Box, a Scottish ready-meal company, is already looking to exit the stock market. It has been trying to raise money for less than two years since joining the Aim markets. Victorian Plumbing, a digital DIY retailer, was the largest-ever listed on the junior market in June 2013 at a value of £850m. It is now worth less than a quarter of that, after a plunge in profits.

Virgin Wines and delivery app Deliveroo, as well as consumer electronics website Music Magpie, saw shares drop by 63%, 77%, and 88% respectively after trading became more difficult due to pandemic restrictions.

According to industry insiders, many consumer-facing companies listed in the public markets are considering leaving the public markets. However, it is difficult to find alternative funding sources. Made could be followed by more casualties, and this is not only for those who sell online.

After over-investing in hopes of strong pandemic sales, fashion retailer Joules was placed into administration last Wednesday. Matalan, a cut-price clothing chain, is also looking for new funding.

“These retail businesses are in dire straits and are in desperate need of cash. It is almost impossible to raise funds right now. It is too risky and uncertain for a credit committee to lend to consumer businesses. This is why it is experiencing a natural hiatus. Retail experts agree that it is challenging.

There are also punters who believe in the unending growth dream. Deliveroo persuaded an estimated 70,000 people via its takeaway app to purchase shares and to spend £50m to make the stock market debut. Their combined investment would now amount to just over £12m. The average investor’s stake will fall in value from £714 at floating to £170 this Week.

BlackRock, a cornerstone investor, bought £300m worth of stock via flotation and Janus Henderson bought £100m shares. They have since reduced their holdings as they saw the market fall.

Made saw blue-chip investors such as Majedie Investments and Axa Investment Managers buy into the float. They spent £50m, £30m, and just over £22m on shares, according to the prospectus. However, their investments plummeted.

The small group of accountants, bankers, and lawyers who served the float had their share of rich pickings. Made’s advisors JP Morgan Cazenove Morgan Stanley, Morgan Stanley, and Liberum Capital as well as boutique house OGG Consulting received shared fees of £10.2m.

JP Morgan also received a large payout as a key advisor on Deliveroo’s and THG floats, where banks and other advisors shared more than £62m each in fees. Deliveroo shares fell by 34% and Deliveroo by 86% since then. Numis and Goldman Sachs were also present at those deals.

According to the prospectus, Ning Li and Brent Hoberman, founders of sold nearly £8m and £5m respectively in shares from their By Design fund.

Moulding, chief executive of THG, repaid a large sum of £54m and obtained rights to properties for which he could receive PS19m per year in rent. Mark Radcliffe, founder of Victorian Plumbing, took out £212m, and Walter Gleeson, founder and CEO at Music Magpie, £22m.

Venture capital and private equity firms did also well. Made’s tech fund backers, Level Equity from the US as well as Partech from France, cashed out PS18m together on the float. However, they saw the rest of the investment go to waste.

Private equity group KKR, which owned 20% of the float, sold its entire stake for £448m. A number of private investors did well, including Sir Terry Leahy (ex-Tesco boss), who cashed in £17m worth of shares. Music Magpie raised £95m from backers-led NVM (private equity group), which cashed out almost £40m.

“Obviously, they believed it was a good moment to sell. One seasoned executive says there was an element of cynicism. He said he rejected at least one board position of a new stock exchange entrant because he didn’t believe in its growth story.

“Any sensible person would see that there is a danger that this [kind] of growth is not sustainable. Then, they ask if it is a flash in a pan during a pandemic.

GlobalData’s Patrick O’Brien says that there was an “irrational exuberance toward online retail shares” during this pandemic. However, it was confusing for investors and companies. It was difficult to see how consumer behaviour would change. We had no idea how long the pandemic would last.

According to him, the current slump in online retail share prices is due to another false belief: that the high streets will always recoup sales from the internet.

A senior retail executive agrees with the warning that investors shouldn’t learn the wrong lessons from the collapse caused by the pandemic.

“Bubbles often lump together many businesses from different industries. This is a huge mistake. There are many great pure plays as well as some bad ones. They trade mostly online so that is not what will make them good or bad.

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