While rising interest rates put financial pressure on Australian households which slashed discretionary spending, online retailers could either take the high road or prepare their businesses to bounce back. For online retailer Harris Technology (ASX: HT8), it’s been the case of the latter through prudent cash management and upgrading into new verticals that will drive shareholder value in the coming years.
As the retail industry produced headwinds towards the backend of the pandemic, online sales stalled as Australians resumed in-store shopping after more than a year of lockdowns and movement restrictions. For online retailers, including Harris Technology, it meant large inventories of purchased stock while online sales fell.
Taking swift action in June 2022, Harris Technology undertook a strategic review of its entire product inventory. The Company identified products where sales were struggling the most and generating the lowest margins. It meant a large quantity of IT and consumer electronics products were discontinued in an effort to reduce the impact of upcoming headwinds in FY23 which adversely affected the entire retail industry.
“Trading through FY23 was very difficult in the backdrop of macroeconomic factors, namely interest rates and cost-of-living increases, which impacted discretionary spending,” said Harris Technology CEO, Garrison Huang.
“While Harris Technology was not immune to these headwinds, we took a conservative position to preserve cash, clear ageing inventory and pivot our product ranges to focus on higher margins. These changes resulted in a decline in year-on-year revenue but have positioned Harris Technology to bounce back.”
Sales revenue of $24.2 million across FY23 was a 52% decline on the previous year but had the Company not undertaken the strategic review, gross profits would have been substantially lower than the $3.8 million generated.
By only re-stocking higher margin products and expanding into the Household category where margins are at least 40% on sales, the online retailer slashed its inventory holding from $9.8 million at the end of FY22 to $4.7 million at the end of FY23 to preserve cash flow and not need to raise capital or dilute existing shareholders like many competitors did to stay afloat.
In their pivot towards higher margin sales, Huang identified opportunities internationally where the retail headwinds were not as tough as they are in Australia. Leveraging their network of international product manufacturers, a space where Harris Technology has operated in for more than 30 years, Huang oversaw the re-launch of the Manufacturer-to-Consumer (M2C) division.
M2C operates as an eCommerce supply chain and marketing business where Harris Technology sells private label tech products directly to consumers without operating any of their own warehousing facilities. Instead, M2C utilises third party logistics providers, enabling Harris Technology to sell products at lower price points than major brands.
From just a small range of tech products, Harris Technology’s M2C division is already generating sales in the United States, Canada, United Kingdom, Singapore and Australia.
“We have been encouraged by the small range of products being sold internationally by the M2C division which will provide insights into further growth where we will be able to scale the division in additional international markets,” said Huang.
Alfred Chan is an Analyst at Emerald Financial, specialising in ASX-listed small cap companies.
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