While Australia’s retail industry continues industry-wide struggles, eCommerce company Harris Technology (ASX: HT8) is focusing its growth on friendlier retail markets while Australia faces a spending crunch, catalysed by rising interest rates which have put immense pressure on household spending.

Ongoing interest rate rises enforced by the Reserve Bank of Australia have hit all retailers across the ASX. With higher mortgage repayments, inflation and higher cost-of-living expenses, discretionary spending is near all-time lows domestically. But rather than wallowing in pity over monetary policy beyond their control, Harris Technology sees an opportunity to test retail products overseas.

The Company is best known as an online seller of IT products but also has a smaller division which sells products directly from manufacturers to consumers. They happen to call it their M2C division which sources private label tech products, and distributes them via third party facilities abroad.

In the March quarter, Harris Technology began selling M2C products in Singapore and Canada. Fast forward three months into the June quarter and they have now added the United States and United Kingdom where they have a small range of tech products listed.

Unlike their Australian operations where Harris Technology ships products from its warehouse in Victoria, the international M2C division does not operate its own warehouses, reducing overhead expenses. By selling a small range of tech products in markets not facing cost-of-living pressure as high as Australia, Harris Technology CEO Garrison Huang sees it as an ideal time to test product in the markets to gain insights into those that will perform best in Australia when inflation pressure eases and households revert back to their normal spending patterns.

“Although the market for non-discretionary retail in Australia is facing headwinds, international markets present opportunities for our M2C products,” said Huang.

“We have had productive discussions over the past months with manufacturing partners. We will progress with trial listings with a limited range of products in the US, UK, Canada, Singapore and Australia.”

For the year ended 30 June 2023, Harris Technology reported $25.4 million of sales revenue with the Company delivering small positive operating cash flow of $300k for the year. Unlike other retailers that struggled throughout FY23 due to the macroeconomic environment, Harris Technology did not need to raise capital from investors at any point, or tap debt markets.

Instead, the Company identified slowing online sales in the pandemic aftermath to perform a strategic review in June 2022 which saw a large portion of low-margin tech products removed from the inventory portfolio, prioritising profit ahead of revenue.

Subsequently, the $25.4 million in sales for FY23 was down on the previous year’s $50.3 million but the Company was able to preserve its cash reserves without diluting existing shareholders by raising capital at low valuations.

Inventory management played a major role in the performance of Harris Technology which had $5.2 million of inventory on hand as of 30 June 2023. This was comfortably down on the $9.8 million on hand at the start of FY23, meeting Board objectives to clear aging inventory to preserve cashflow. By doing so as part of their strategic review in 2022, the Company has primarily been replenishing its inventory with lower-cost products being turned over quickly. Of that $5.2 million on hand, $4.7m was new inventory purchased in the June quarter.

Despite it being a tough year for Harris Technology, the Company’s discipline has them on track to return to normal trading as economic headwinds in Australia ease, and they can jump straight back into the market with the products that perform best overseas.

“By trialling the product ranges with small commitments, we will have better product selections to address the busier retail season with Black Friday and Christmas,” said Huang.