Online retailer Harris Technology (ASX: HT8) has seen a significant improvement in earnings after repositioning its business strategy to counter the adverse effects of declining discretionary spending. The Company’s strategic shift, aimed at navigating a difficult economic climate where Australian households have pulled back on spending, has helped boost margins and earnings despite a reduction in overall sales revenue.
For FY24, Harris Technology reported sales revenue of $16.7 million. While this was a 31% decrease on the previous year’s $24.2 million, it was very much deliberate by the retailer which downscaled its IT products business, a category that had been heavily impacted by a broader downturn in retail and discretionary spending over the past 18 months. Instead, Harris Technology pivoted its inventory towards the household and refurbished tech products categories, which presented higher margins and more favourable inventory turnover rates. These categories also allowed Harris Technology to best leverage its existing supply chain infrastructure and online marketplace selling power.
The shift in strategy yielded positive results. Harris Technology posted a gross profit of $4.8 million for FY24, marking a 29% increase over the previous year’s despite the drop in revenue. This improvement reflected the success of the Company’s pivot away from its reliance on premium and bulky IT products such as custom PCs and graphics cards, which had suffered from the economic downturn.
Harris Technology’s focus on product portfolio management with an emphasis on higher-margin products saw it maintain gross margins above 20% for 11 consecutive months during FY24, averaging 29% for the year – significantly higher than the 15.5% average across FY23.
One of the key drivers behind this improvement was the rising demand for refurbished tech products which have become increasingly popular as Australian households deal with cost of living pressures. The products are typically pre-owned devices that have been inspected, repaired, and restored to full functionality with Harris Technology being an authorised reseller of such products on all major online marketplaces due to their professional standards.
This appeal lies in their affordability, offering cost-conscious consumers a practical alternative to expensive new tech without sacrificing performance or reliability.
During the second half of FY24, Harris Technology adjusted its warehouse floor space usage to accommodate the growing refurbishment operations where Harris Technology sources, refurbishes and packages the products. The Company began sourcing and refurbishing a range of previously owned products, including laptops, monitors, routers, servers, and docking stations, which have delivered better margins than new IT products whilst being sold at appealing price points.
Margins on Apple products, for example, are typically low for retailers whereas refurbished products deliver vastly improved margins.
Since establishing its refurbished tech business towards the end of 2023, Harris Technology has achieved over $1 million in total sales from the category. The Company sees substantial growth opportunities in this space for FY25, especially as consumers turn to low-cost alternatives whilst cost-of-living pressures persist in Australia.
To maximise the potential of its refurbished and household products categories, Harris Technology scaled back its Manufacturer-to-Consumer (M2C) business which sold private-label tech products. While they reduced activity in this space to capitalise on current trends, working relationships with manufacturing partners remain intact and can be reactivated quickly, should retail trading conditions improve.
CEO Garrison Huang was pleased to see the improvement in gross margins throughout the year.
“We successfully navigated the challenging post-COVID downturn and stabilised Harris Technology,” said Huang.
“Despite the difficulties in retail trading throughout FY24, we achieved a substantial improvement in gross margins by reducing inventory and shifting to higher-margin products. Our lean operating model and agility to respond swiftly to market demands position us well for a strong recovery.”
Looking ahead, Harris Technology’s strategic pivot towards higher-margin, refurbished products and household goods places the Company in a strong position to benefit from changing consumer behaviour. With a leaner operating model and flexibility to adapt to market conditions, Huang believes there are opportunities to grow the refurbished products business and benefit when demand for new IT products resume when cost-of-living pressures ease.
Alfred Chan is a Business Reporter at The Sentiment specialising in ASX-listed small cap companies, bloodstock enthusiast and former Analyst.
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