More pain for online retailer THG as key insurer cuts coverage

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Struggling online beauty retailer THG is facing cash pressure 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 reduced cover for suppliers to the beauty-to-nutrition retailer, formerly known as Hut Group, in recent weeks.

Credit insurance is used to protect suppliers against the risk of retailer bankruptcy between the time of acceptance of an order and the time of payment. Suppliers typically require upfront payment if coverage is not available, which squeezes the retailer’s cash flow.

Credit insurers have reportedly cut cover for a range 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 rising interest rates on consumer spending.

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

It is understood that Allianz has informed THG suppliers of its decision in recent weeks, although it continues to cover them, alongside other credit insurers. Sources close to THG said the reduction in coverage was “small” compared to its overall level of credit insurance and reflected coverage not used by suppliers.

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 plunge.

The THG float was the biggest initial public offering on the London Stock Exchange for seven years when it was launched in September 2020, worth over £5bn. But the stock has since fallen 93% to just 53p, valuing the company at £667million.

Investors have been spooked by governance concerns and questions about the value of its Ingenuity technology division.

Japanese tech investor SoftBank ended a deal that would have seen it buy a fifth of the division for $1.6bn (£1.3bn) and in October divested all of his stake in THG, which represents a loss of £450 million on his investment. He sold the stake to Molding and the Qatar Investment Authority.

In September, THG shares plunged after slashing full-year sales and profit expectations, saying it prioritized its “loyal customer base over maximizing gross margins in the short term.” term”.

THG signed a £156m “gradual” bank facility “on very attractive terms” in October and has around £500m of liquidity in total.

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

The Hut Group was founded by Molding in 2004, originally selling CDs and DVDs for other retailers. It owns a series of direct-to-consumer retail sites, including sports nutrition brand Myprotein and specialty beauty retailer Lookfantastic.

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

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

A series of bidders then flirted with a takeover of the retailer. Belerion Capital and King Street Capital Management have decided not to make a formal offer for the company after considering a £2bn takeover.

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

THG and Allianz Trade declined to comment.

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