Redbubble faces inflation-led headwinds despite cost-cutting

Investors have turned bearish because of changes in consumer behaviour.

High inflation is expected to continue weighing on Redbubble Group, an online marketplace for gifts and merchandise, even as it plans to implement cost-cutting measures such as laying off a fifth of its employees last month, said GlobalData.

Redbubble also plans to save costs by ceasing investments in the company’s brand awareness project and cutting down general costs in line with business scale and priorities. These initiatives aim to bring down its cost base by $20m to $25m to make its business cash flow positive by December this year.

The cost cuts come in the wake of a decline in its revenue in FY2022 and a sharp increase in inflation in Australia, GlobalData noted. In FY2022, Redbubble’s revenue declined by 12.8%, turning it into a loss-making company.

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Raviteja Neralla, retail analyst at GlobalData, noted that Australia has been going through a period of a sharp rise in inflation since the beginning of 2022. From 3.5% in the December 2021 quarter, consumer price inflation rose to 7.8% in December.

Despite the company’s ambitious cost-cutting plan for the year, investors have turned bearish because of the change in consumer behaviour, Neralla said, noting that Australians have become more price sensitive and are likely to remain so in the first quarter of 2023.

“When consumers restrict their expenses, they prioritize spending on essential goods and drastically cut their expenses on discretionary items such as Redbubble’s offerings. That is the reason why the company’s shares witnessed a sharp sell-off in January, despite its massive cost-cutting ambitions,” said Neralla.