The troubled online beauty retailer THG faces pressure on its cashflow after a leading credit insurer reduced cover to its suppliers.
The Guardian can reveal that Allianz Trade, one of the UK’s largest credit insurers, cut back cover for suppliers to the beauty-to-nutrition retailer, formerly known as the Hut Group, in recent weeks.
Credit insurance is used to protect suppliers against the risk of a retailer busting between the point of accepting an order and payment being made. Suppliers typically ask for upfront payment if cover is not available, putting a squeeze on the retailer’s cashflow.
Credit insurers have reportedly cut cover to a series of retailers this year, including Asos, AO World and Ted Baker, amid a sell-off in shares of tech and online retail stocks. Investors are concerned about the impact of a potential global recession and rising interest rates on consumer spending.
Last month Allianz Trade lowered its cover for Boohoo group’s suppliers, according to trade publication Drapers. Meanwhile online furniture retailer Made.com collapsed into administration in November.
It is understood Allianz informed THG’s suppliers of its decision in recent weeks, although it continues to provide cover for them, alongside other credit insurers. Sources close to THG said the reduction in cover was “small” compared with its overall level of credit insurance and reflected cover that was unused by suppliers.
The reduction is the latest headache for the THG founder and chief executive, Matt Moulding, who has seen the value of the Manchester-based e-commerce group plunge.
THG’s float was the largest initial public offering on the London Stock Exchange for seven years when it floated in September 2020, worth more than £5bn. But the stock has fallen 93% since to just 53p, valuing the company at £667m.
Investors have been spooked by governance concerns and questions over the value of its Ingenuity technology division.
The Japanese tech investor SoftBank terminated an agreement that would have allowed it to buy a fifth of the division for $1.6bn (£1.3bn), and in October dumped its entire stake in THG, amounting to a £450m loss on its investment. It sold the stake to Molding and the Qatar Investment Authority.
In September, THG’s stock nosedived after it cut full-year sales and profit expectations, saying it was prioritising its “loyal customer base over maximizing near-term gross margins”.
THG signed an “incremental” £156m banking facility “on highly attractive terms” in October and has about £500m of cash on hand in total.
In its most recent trading update, THG said revenues had risen to £518.6m in the third quarter of the year, up by 2.1% over the same period a year earlier.
The Hut Group was founded by Molding in 2004, originally selling CDs and DVDs to other retailers. It owns a string of direct-to-consumer retail sites including sports nutrition brand Myprotein and specialist beauty retailer Lookfantastic.
The entrepreneur has said he should not have listed THG in London and the experience “has just sucked from start to finish”.
Molding has accused “aggressive” short-sellers of driving down the share price of the company. Bets against it peaked at 4.3% of the stock in October, and now 2.6% of shares are out on loan to companies predicting the share price will fall further. Short-sellers in THG include the US fund Citadel and Marshall Wace, the hedge fund co-founded by Sir Paul Marshall.
Earlier this year, former ITV boss Charles Allen was appointed chair of THG after Moulding was criticized over the power he wielded as executive chair.
A series of bidders then flirted with a takeover of the retailer. Belerion Capital and King Street Capital Management decided against making a formal offer for the company after considering a £2bn takeover.
The property tycoon Nick Candy, who was involved in a bid for Chelsea FC this year, also considered making a bid.
THG and Allianz Trade declined to comment.