Matt builds Hut to £27m

Online retailing entrepreneur Matt Moulding has quietly built the fifth-largest online retailer of entertainment products in the UK, behind Play.com, Amazon, HMV and Game. His company The Hut.com is little known — partly because its main sales channels are “white label” sites for major high street retailers including Asda, Dixons and Boots. It produces entertainment channels on each firm’s site selling CDs, games, DVDs and other entertainment products and handles the fulfilment but shares the profits with brand owners.

In the year to the end of June the Northwich-based company made a pre-tax profit of around £200,000 on sales of £14.1m but Moulding expects sales by the end of the year to be much higher. “We’re turning over £1.5m a month compared to £500,000 a month this last year,” he said. “Our big period is Christmas, and our run rate off the first six months suggests we’ll do £27m.”

The Hut.com has also just signed a three-year deal with the Irish owners of sendit.com which could be worth up to £20m in revenues to the firm, said Moulding, who until recently was finance director at 20:20 Logistics — the mobile phone distribution firm sold by John Caudwell to US venture capitalist Doughty Hanson for £347m in August 2006.

Moulding, 36, who owns 58 per cent of the Hut.com, said he began looking at the idea of an online entertainment site after buying a CD from a Jersey-based business in October 2003. When he discovered firms based offshore had been able to take advantage of a rule known as the Low Value Consignment Relief (which exempted items below £18 that are purchased outside the EU from VAT), he started planning his own launch and eventually convinced a couple of friends to chip in to help launch the site with an initial £500,000 investment.

The offshore advantage had almost disappeared prior to the site’s launch in April 2004 once HMV and Tesco announced plans to open their own offshore operations. Yet he and former Caudwell colleague John Gallemore (who has run the site since its inception and holds an 18 per cent stake) persevered. They scrapped plans to try to build theHut.com brand through online advertising within a month and instead concentrated on the white label model. “It’s expensive to get traffic to your site through the likes of Google Ads and online marketing. There are a lot of fraudsters out there.”

As it is, he still expects theHut.com site to bring in around £6m of the forecasted £27m for 2008 but admits it needs an overhaul.

“The first thing people do is look at our site, but we’ve been so busy doing everyone else’s that ours has been put on the back burner.”

The firm currently ships all CDs and games from three warehouses in Guernsey and Jersey but has recently been looking at other options including shipping from Chicago, which would be “less expensive and just as quick, if not quicker”.

He said the long term goal was to grow sales to £100m through developing new territories, customers and sales channels.

The sendit.com deal, with e5.5bn-turnover Irish company DCC Group, should allow it to do the former once it recruits multilingual support staff, and the hunt for new customers will probably involve acquisitions (it has retained Clearwater Corporate Finance to size up potential targets).

For new channels, it is planning to launch online sales of flowers, t-shirts, lingerie and perfume, among others. The latter will be done in conjunction with fellow Burnley FC fan, Brendan Flood of Modus Ventures.

He is also exploring the possibility of launching The Hut.com concessions within some of Modus’s shopping centres. The terminals would offer shoppers items at cheaper rates than neighbours, he said, as they would operate on lower overheads. It would do deals for smaller, empty units and place terminals within window spaces. The units would not need to be staffed, he argues, and window space could be sold to third party advertisers. He estimates that a small unit with a cheap fit-out would cost around £200,000 — half of which could be recouped on selling window space.

“If we don’t sell a thing, having that level of brand awareness could help towards lifting our online sales,” he said. “And if it’s crap, we could just drop it. We’re not ashamed to admit if something’s wrong. The worst that can happen is someone pees on my computer screens.”

Richard Faulkner, an area director with Bank of Scotland, which is not a lender to the company, said Moulding’s growth plans were “impressive, particularly in the light of the current retail environment”.

Faulkner added: “The directors’ choice to enter the market as a white-label provider has proved to be inspired. It leaves them well-placed to acquire branded rivals.”