Despite the struggles faced by reduced consumer spending in response to interest rate pressure in Australia, online retailer Harris Technology (ASX: HT8) has played a steady hand through the economic headwinds and is now reaping the benefits via the inventory initiative that commenced 12 months ago, driving sales margins to recent period highs and sustainable levels.
Across the March quarter, Harris Technology generated $5.3 million in sales revenue, mostly through its focus on high-margin products that survived a brutal inventory review 12 months ago. In doing so, the Company sacrificed revenue but it would prove a vital move in tiding the business over through a difficult period for online retailers in the pandemic aftermath that has seen the collapse of many well known retailers.
Critically, Harris Technology’s sales across the March quarter were made at an average gross margin of more than 20%. This was the first time since the pandemic that the Company achieved it for three consecutive months with previous periods dragged down by large portions of products sold at clearance prices. When the online retail industry was left overstocked as pandemic trends of online shopping were not sustained, Harris Technology made the swift move to undertake a strategic review to axe underperforming products and bulk items that restricted cash flow.
The survivors – high-margin products that can be turned over quickly. It also involved entering the household products category and international expansion into white label products.
As of 31 March 2023, Harris Technology’s inventory was down to $5.9m which is a figure management were satisfied with and less than half of the stock they were carrying 12 months ago. Importantly, the Company invested $5.2m in new stock during the quarter, suggesting that the ageing component of their inventory is very low.
Harris Technology CEO, Garrison Huang commented, “It has been pleasing to see the results of our focus in margin improvement having delivered three consecutive months of gross margins above 20%.”
“Trading through the March quarter has again been impacted by difficult economic conditions but with minimal ageing inventory on hand, Harris Technology is well positioned to allocate more resources towards its higher-margin products.”
Operating cash out-flow was $0.2m, but that did not stop the Company from maintaining a positive operating cash inflow YTD of $1.1m for the 9 months while ending the quarter with $2.7m cash on hand.
Clearing most of its low-margin inventory has enabled Harris Technology to increase activity in the Manufacturer-to-Consumer (M2C) business which has commenced its international operations. Harris Technology identified market opportunities specifically in Canada and Singapore for higher-margin tech products that carry minimal inventory risk with high turnover frequency, therefore began vying for larger commercial opportunities in those regions starting with a small range of tech products.
Being in its infancy stage still, Harris Technology does not expect these M2C sales to have a significant material impact on FY23 revenue. However, Canada and Singapore are likely being used as test markets to establish the supply chain for broader regional expansion where online stores have been registered in 14 countries.
Clara is a Business Reporter for The Sentiment.
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