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Temple & Webster makes progress on path to profitability

Temple & Webster is well on the road to recovery from its dismal debut as a listed company. After losing $44 million in FY2016, the online furniture retailer narrowed its net loss to $5.4 million in the first half of FY2017.

The company attributed its turnaround to cost-cutting measures implemented over the previous six months, including the technical integration of Milan Direct, reduced marketing and distribution costs, as well as a strategic shift in focus to furniture as a higher margin category.

Temple & Webster expects to return to profitability in calendar year 2018, saying it will break even when annual revenues reach between $70-90 million. It recently reported $33.4 million in revenues for the first half of the 2017 financial year.

“It would be really easy to go hard across all the different line items in our P&L, which would fast-pace our return to profitability, but it wouldn’t be sustainable for the long-term. We’re not being silly about this, we’re doing this in a sustainable manner,” Mark Tayler, Temple & Webster’s CFO said.

One area where the company has worked to improve its long-term profitability is its strategic shift from homewares to furniture. The higher margin category now represents more than 50 per cent of the Group’s sales, up from 44 per cent in FY2015.

At the same time, Temple & Webster has moved away from rampant discounting and promotional activity as a way to drive sales.

“The fruits of these strategies can be seen in our improvements in gross margin and average order value (AOV),” said Temple & Webster’s CEO Mark Coulter, noting the company’s 15 per cent year-on-year increase in AOV to $261 in the half.

Temple & Webster’s AOV has increased even as the company scaled back its free shipping offer. Coulter said the company now charges customers the cost of shipping, but is transparent about prices.

“There’s no such thing as free shipping. It’s a really great marketing vehicle, but at the end of the day, it’s a cost to the business,” he said.

Coulter is convinced that Temple & Webster can still grow its customer base without the crutch of discounts and special offers going forward. For one thing, he believes that demographic change will grow the e-commerce furniture market, as older millennials increasingly shop for their homes online.

Offering the right products, a great experience and taking out as many barriers to entry as possible will be the most effective ways to attract and convert customers going forward, he said.

This includes an enhanced version of Temple & Webster’s mobile-first website, which is expected to launch in the second half of FY2017. A mobile app is also in development, as more than 50 per cent of the company’s web traffic comes from mobile devices.

The Temple & Webster Style School is another way the company aims to improve the experience of buying furniture online by partnering with the Sydney Design School to offer short courses on styling.

But according to Coulter, there’s a lot more that could be done, especially in the delivery of bulky items.

“Cracking bulky item deliveries is the big thing for us because no one’s really doing it well on a national level. The experience of getting a piece of furniture delivered to a home, having a two-man team bring it inside, having them pick it up if the customer’s not happy with it…all that seamless service is where we’d like to differentiate against our competitors,” he said.

Coulter also sees click & collect playing a bigger role in Temple & Webster’s future. The retailer already supports click & collect for Milan Direct items at its Melbourne pop-up, and work is underway to expand the service to support Temple & Webster’s full range.

A new flagship showroom – likely in Sydney – is planned for 2018, which would provide a second click & collect location. Beyond that, Coulter said he would third-party collectoin points for bulky items.

“I know ParcelPoint offers storage facilities as click & collect locations, and there may be other locations as well. We’re still drawing up the strategy for that,” he said.

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