Following up from an impressive FY18, Temple & Webster’s CEO explains why retailers need to start taking online more seriously and what Amazon and a changing demographic means for the industry.
Furniture and homewares store Temple & Webster today released its full year results for the 2018 financial year, posting a revenue of $72.6 million and a near break-even result with a net loss after tax of $21,000. The company finished the financial year cash flow positive with ending cash of $9.9m and no debt.
“[T]wo years ago we promised our shareholders we would reach profitability during calendar year 2018 without having to raise additional capital, and I am proud to say that we achieved this goal,” said CEO Mark Coulter. The company has ended the 2018 financial year with EBITDA (earnings before interest, taxes, depreciation and amortisation) of $0.3m, a second half revenue up 25 percent year on year and the first month of the 2019 financial year up 34 percent year on year.
“The work performed on resetting the cost base, improving our gross margins and shipping costs, reducing our cost per first time customer and offshoring our customer care and other support staff has now set the business up for profitable growth,” Coulter added. “Importantly, we achieved our breakeven milestone through strong growth in both active customers and revenue in the second half.”
In the investor call, the company noted that the core furniture and homewares category is a $13.6 billion dollar market, with only about 4 percent migrated online. “The furniture and homewares market is a big market…the US and UK already have significantly higher [online] penetration rates than Australia and while there are several reasons for this, my view is that our offline incumbents are still resistant to online,” Coulter said. “For example the market leader Harvey Norman doesn’t actually sell furniture online. Ikea has only just started selling furniture online. The bigger retailers in the US and UK have already made the jump online and are pushing the multichannel offers. Ikea’s recent move suggests it’s only a matter of time before our market will follow the US and UK. This will actually be good for us, because the more people shopping online, means there are more chances of finding Temple & Webster.”
Furthermore, perceived ‘threats’, such as Amazon, are actually helping to position the online retailer. “I should note that we haven’t seen any impact of Amazon on any of our categories,” Coulter explained. “If anything, they’re probably helping us, as they continue to drive people to shop online. I’ve said before that Amazon is not a bulky retailer, and as predicted, they have focused on their core categories, such as electronics.”
The company warns that retailers will have to start taking online more seriously, partly because of the marketplace effect, but for the furniture and homewares industry specifically, because of demographic shifts. “The furniture and homewares customer is an older customer compared to fashion and electronics,” said Coulter. “Our target demographic is 35 to 55. Milliennials who have grown up buying their fashion and electronics online are now entering our target demographic and starting to spend money on their homes. This demographic change will mean our market should grow for a long time to come.”
In terms of innovation in the last year, Temple & Webster has introduced a new visual search tool, a new in-house paint range in partnership with Taubmans and its first branded ‘Duck truck’ delivery van (in duck egg blue) to improve the bulky delivery service. While Temple & Webster will continue to partner with Australia Post for smaller items, it will pilot its own delivery service so that the in-home experience matches the on-site experience. It is also setting the business up for future growth horizons, looking at entering the New Zealand market, adding adjacent categories and looking at small-scale offline avenues in Melbourne and Sydney.
The company remains confident that it is on track to deliver its maiden full year profit in the 2019 financial year.