Just because something costs less, it doesn’t mean that it won’t be as good as its pricier counterparts. This is the principle that smart shoppers have been living by, which could save them hundreds of dollars by simply buying private label products. These products will always, always be positioned as a cheaper alternative right next to household brands in any category possible.
Customer’s fondness towards cheaper private label products is the major driving force for retailers to release their own label, a retail strategy being relaunched by Harris Technology (ASX: HT8) after being put on hold in 2020 due to pandemic travel restrictions.
With their ability to procure low-cost high-margin electronics from overseas, Harris Technology is resuming their Manufacturer-to-Customer (M2C, aka private label). The Company has been preparing international intellectual property protection and registering online stores in 14 countries outside of Australia, signifying that they are more than ready to go global with these M2C products. Harris Technology believes that their private label can deliver gross margins of at least 40% which aligns with their mission to solely focus on high-margin products.
CEO of Harris Technology, Garrison Huang commented “Harris Technology has explored and achieved high-margins on directly imported product sales such as cables and electronic gadgets at a small scale prior to the pandemic, making it a vertical that we had been keen to expand, but paused during the pandemic due to higher supply chain costs.
“With those headwinds easing, and international consumers showing a preference towards low-cost alternatives, we look forward to expanding Harris Technology’s footprint in the space, and capitalising on online marketplace traffic which is commonly the first destination for customers seeking these products.”
As a comparison, the private label category is one of the core markets for online furniture retailer Temple & Webster (ASX: TPW). In FY22, the Company reported sales of $426m, of which 27% or $115m came from the private label products. This gives investors an idea of Harris Technology’s marketability in the vertical having generated $50m in sales in FY22 without private label contribution.
Leveraging their international retail network that has been operating for more than 30 years, Harris Technology can control all stages of the private label supply chain, including importing, distribution and exclusivity for re-selling. Oftentimes, M2C products share the same quality as branded products, or even come from the same manufacturer. However, M2C products can be sold at a lower price as they don’t need to carry the associated brand costs (name, style, packaging, or brand value).
The pandemic caused disruptions to all online retailers, and Harris Technology was no exception. However, the Company has successfully reduced their inventory by 40% in 9 months to deliver a cash flow breakeven in the September quarter on their path back to profitability in FY23.
Clara is a Business Reporter for The Sentiment.
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