More pain for online retailer THG as major insurance company reduces coverage

Troubled online cosmetics retailer THG is facing pressure on its cash flow after a leading credit insurer cut coverage for its suppliers.

The Guardian can reveal that Allianz Trade, one of the UK’s largest credit insurers, has cut back the lid on suppliers to beauty-to-nutrition retailers, formerly Hut Group, in recent weeks.

Credit insurance is used to protect suppliers against the risk of retailer bankruptcy between the point of order acceptance and payment. Suppliers usually require upfront payment if cover is not available, which puts pressure on the retailer’s cash flow.

Credit underwriters are said to have cut the lid on a string of retailers this year, including Asos, AO World and Ted Baker, amid a sell-off in technology and online retail stocks. Investors are concerned about the impact of a possible global recession and higher interest rates on consumer spending.

Last month, Allianz Trade lowered its cover for Boohoo Group suppliers, according to trade publication Drapers. Meanwhile, online furniture retailer collapsed into administration in November.

Allianz is understood to have informed THG’s suppliers of its decision in recent weeks, though it continues to provide cover for them, along with other credit insurers. Sources close to THG said the reduction in coverage was “small” compared to the overall level of credit insurance and coverage it reflects that suppliers have not used.

The cut is the latest headache for THG founder and chief executive, Matt Molding, who has seen the value of the Manchester-based e-commerce group plummet.

The THG flotation was the largest initial public offering on the London Stock Exchange for seven years when it floated in September 2020, with a value of more than £5 billion. But the stock has fallen 93 per cent since then to just 53p, valuing the company at £667m.

Investors were spooked by governance concerns and questions about the value of the Creative Technology division.

Japanese technology 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 it gave up its entire stake in THG, equaling a £450m loss on its investment. It sold the stake to Molding and the Qatar Investment Authority.

In September, THG stock fell after it cut its full-year sales and profit forecasts, saying it was prioritizing “a loyal customer base over maximizing gross margins in the near term.”

THG signed an ‘additional’ £156m banking facility on ‘very attractive terms’ in October and has a total of £500m in cash.

In its latest trading update, THG said revenue rose to £518.6m in the third quarter of the year, up 2.1% from the same period a year earlier.

Founded by Molding in 2004, the Hut Group originally sold CDs and DVDs to other retailers. It owns a series of direct-to-consumer retail locations including sports nutrition brand Myprotein and beauty retailer Lookfantastic.

The businessman said he shouldn’t have listed THG in London and that the experience “just sucked from start to finish”.

Molding accused “bold” short sellers of driving down the company’s share price. Bets against it peaked at 4.3% of shares in October, and now 2.6% of shares on loan to companies that expect the share price to fall further. Short sellers at THG include 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 chairman of THG after Molding came under fire over the power he wielded as chief executive.

Then you flirt with a series of bidders by taking over the retailer. Belerion Capital and King Street Capital Management have decided not to make a formal offer for the company after considering a £2 billion takeover.

Property tycoon Nick Candy, who was involved in a bid to buy Chelsea this year, has also considered making a bid.

THG and Allianz Trade declined to comment.

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