Although Aussies are doing it tough with rising interest rates putting a strain on spending, eCommerce company Harris Technology (ASX: HT8) has found a sweet spot in the retail sector that is immune to the issues that have plagued online retailers for the past 12 months.
Foreseeing a dropoff in sales of their flagship technology products, Harris Technology has been gradually increasing their exposure to the household products category over the past 12 months. The move came when CEO Garrison Huang noticed a vacancy in the online retail market where few marketplaces offered Household products – little things you might find strolling through a discount department store.
These products are commonly found across all homes in Australia and contributed to the $8.2 million in revenue generated by Harris Technology in the quarter ended 30 September 2022. Although revenue was down from last year, it is the result of a strategic review where Harris Technology axed low-margin products from their portfolio to improve the Company’s overall profitability.
“Despite tough economic conditions, it is pleasing that we have reduced our inventory holding and conserved cash,” said Huang.
“Our strategy of elimination of low-margin tech products has had a short-term impact on revenue but in turn will set the company on a long-term profitability path.
“Investing in the household category puts Harris Technology in a position to benefit from the upcoming retail season where these popular home products are historically at peak demand. We look forward to reporting positive sales in the December quarter.”
Prior to the RBA increasing interest rates each month from May 2022 onwards, retailers have battled with high inventory holdings as surges in online shopping stalled after peaking during the pandemic. While online shopping is still prevalent, it has fallen victim to higher cost-of-living expenses that have been catalysed by interest rate mortgage pressure.
Such headwinds in consumer spending prompted Harris Technology to assess their margin mix of products, enabling the Company to deliver a cash flow breakeven quarter. Succeeding in their initiatives, Harris Technology reduced their inventory on hand by 22% to $7.6 million, down from the $9.8 million held at the end of the June quarter
Contributing to the sales has been an expansion across online marketplaces where Harris Technology utilises marketplace owner advertising to draw online traffic to their high profile online stores. Already with a large presence on Amazon, eBay and Catch, Harris Technology’s tech and household products are now also listed on the Woolworths Everyday Market, Bunnings Marketplace and Mosaic Brands which operates 11 popular consumer stores.
While the exact profit of Harris Technology’s high-margin household goods will not be published until their Half Year report, investors can get an estimate from brick-and-mortar retailer The Reject Shop (ASX: TRS) which sells similar products, albeit with the overhead expenses tied to their physical shop fronts.
In FY22, The Reject Shop reported $788.2 million in sales. Of that, $467.8m was attributed to ‘Cost of Sales’, indicating a product margin of 59.3%. From those sales however, The Reject Shop also reported $260.8m in ‘Store Expenses’ that Harris Technology does not incur.
Alfred Chan is a Business Reporter at The Sentiment specialising in ASX-listed small cap companies, a bloodstock enthusiast and former equities analyst.
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