“They love our product”: How Mwave caters to high-end gamers

e first CEO after founder Victor Lee [stepped down] – I took over around six months ago.  Victor founded Mwave as a pureplay business that sold computer components because there is a gap in that market. The major electronics retailers, like JB Hi-Fi, Officeworks, and Harvey Norman, sell mass-market products. They have a more limited range and they go after high-volume sales and a more general consumer.  But around the edges and in the niches, there is a huge number of PC enthusiasts and gamers that either want higher performance equipment that you can’t get at those places, or they want to build their own computers. These are people who are seeking products that aren’t available at the more mass-market electronics stores. So this business found that niche, and there are a few other players in the industry: there’s Scorptec, Centre Com and Umart. They went from corner stores into retail store networks, and have now pushed into online.  Mwave was a pureplay e-commerce business 16 years ago, before that term was even well-known in Australia. That’s the space that we play in, and we sit a bit more on the premium end of the market. We sell more expensive graphics cards than cheaper ones, more 49-inch monitors than standard 20-inch monitors, so that’s where we orient ourselves. IR: Can you tell me a bit about your bricks-and-mortar presence? PR: We have one showroom, which is attached to our Lidcombe warehouse and offices in Sydney. I wouldn’t consider it a proper retail location, it’s more of a showroom for some of our higher-end products and key brands, though it gets more foot traffic than you would think. It’s in an industrial area, but it’s become a bit of a destination. [Bricks-and-mortar] is a small part of the business, and we also have a growing business-to-business segment, but 80 per cent of our business is pureplay. I can see a future where we take our showroom concept to more locations. We’re not going to build a big retail network, that’s not our model, but I can see us expanding on the showroom concept in the future. The benefit to having the showroom attached to our warehouse is that you can buy anything in-store. We have a customer-facing point of sale in the store that is basically a re-skinned version of our website where customers can shop, and then we can go and pick the product and get it to them right away. But generally the store functions to let customers try out some of our higher-end products in person – some of our gaming rigs and our racing set-ups.  It’s also about face-to-face service. If people want a custom computer and aren’t sure exactly what they want, they can come in and get help from our staff, and we can educate them about our pre-build range. IR: Focusing on such a niche segment of the market must require a lot of expert knowledge from your staff. How do you develop that? PR: You’re right, it is a very technical area, but we tend to hire people who are gaming enthusiasts. You don’t have to be, but it’s a big plus. Our staff often come with that knowledge, many of our customer service technicians are PC enthusiasts who have built PCs for years and it’s something they’re passionate about already. The other side of the equation is that we often try to promote internally as often as possible, because, to your point, the product knowledge is so specific that it becomes quite important. When we do hire outside of our business, we tend to hire people who have previously worked for the brands and distributors we work with – so they tend to come with that knowledge as well. There’s a disadvantage there as well though, to be quite transparent. We’ve probably not brought in enough marketing and e-commerce experts who don’t know the category that well. We probably need to do a better job matching those two skillsets together, and we’ve largely sided pretty hard on the knowledge part. IR: One of the major issues that has hit the retail industry over the past few years is supply-chain pressures and shortages, and I know that it hit the computer components sector pretty hard. Can you tell us a bit about that, and what that space looks like now? PR: It’s recovering, but not quite recovered. You kind of have to characterise it in three phases. There’s the part where Covid hit and everyone had lots of stock. Sales and margin flew because everybody needed the goods, and lots of product was there. That was a great time for e-commerce electronics sales, maybe not for everyone. Then the second phase was characterised by an absolute lack of any new stock, product lines or launches, because there was a worldwide chip shortage coupled with shipping issues. The chip shortage has been a worse issue for us in terms of its longevity, and that was a period when everyone was battling for poorer quality stock. Businesses had to load up on whatever they could get and probably were not being as careful as usual about what they were willing to sell.  Then in the third phase, which we’re in now, we’re starting to see product launches again, and the supply-chain issues are starting to alleviate, but because there’s a flood [of supply] in the market and less latent demand. We’re seeing margins being squeezed.  If someone else has 1000 units of something that we have 50 of, I have trouble selling those 50 units because the guy with 1000 has to sell them at a really deep discount. So it’s a very price competitive margin squeeze at the moment.  But there are two dynamics going on at the same time. Prices are being dragged down because of this squeeze, but the originally posted retail price of the admittedly low volumes of new product is really high.  For example, a year ago, [the RRP for] a top-of-the-line Nvidia graphics card was $2600, and you’d think the top of the line this year would be around $2800, but they’re bringing it out at $3600. But then you’re buying that stock at $3600, and it’s not selling at that price, so everyone is discounting, but there isn’t support for that in its margin. There’s a lot of product in the market, but not that much great product. The high-end stock sells out really fast and everything else is a glut, and everyone’s in a bit of a race to the bottom. And that’s all part of the macroeconomic environment we’re in. So it’s a really weird place to be in, and I think it’ll continue to be like that for another six months on the supply side. By the middle of the year, I think brands will have worked out where the price levels should be. IR: Those issues largely hit the consumer side of Mwave, but you also have a business-to-business segment. Can you tell us about that? PR: Yeah, the business sales came out [of the fact that] a huge amount of IT and gaming nerds are IT managers in other businesses, and they love our product and service, and know how to order from us, so they started ordering for their work as well.  At this point, about a quarter of our online sales are to businesses.  We’ve set up our checkout online so that if a business has credit terms, they’re able to check out using their credit term facility, and they’re also able to put their purchase order through our website, which is important for businesses that get billed, rather than paying with a credit card. Those are just a few simple functionality pieces that we’ve implemented to make it easier for them to transact online.  Then we started building out a small team of account managers to help with businesses that needed a bit more care – maybe they needed help with quotes, or wanted a bit more ongoing service – and that team’s been growing since the start of this year. We’ve been really focusing on developing that out.  What we’re doing now is partnering with installation and IT services companies with the aim of being able to handle the hardware for our clients, and then also offer them installation and ongoing IT support, so we can deliver a whole IT suite.  A lot of companies would come to us with problems like, ‘We’ve got nine big meeting rooms that we need to be decked out, but we want someone to come in and set it all up and train us how to use it all’, and that’s just not a capability we’ve had in the past. So we’re building that out now.  IR: That’s exciting. What else are you expecting to do in the next year or so to improve and expand the business? PR: We’re doing a number of things. One of the big focuses for us is our supply chain. We have a warehouse that was great for a business half the size we are now, and with some processes and technology that are starting to creak.  It’s an old-school warehouse that’s very dependent on manual labour, and for an online business, efficiency in the warehouse is important for both our bottom line and our customer experience.  We have challenges sometimes where we’ll get a few days behind in shipping because of a spike in volume or some other challenge. And we’re a bunch of gaming people, we’re not experts in that side of the business, so we’re putting quite a bit of resources in sprucing that up. We’re also working on a number of initiatives on the marketing front. We’ll be putting more focus on first-party data and first-party marketing, moving into some of the newer social channels, doubling down on some of our influencer and gaming relationships, and pulling some of our spending away from more traditional marketing. It’ll be more of an evolution rather than a revolution.  Product is the bread-and-butter of what we do, so we’re looking out for new lines to pick up. We’ve got some new stuff on the way that I can’t talk about yet, but it’s exciting.  And then we’re planning a much more strategic focus on what we call our R2Gs, or our ‘ready to game’ custom computers. More options, more defined price points, better components, and a big focus on marketing them because they’re Mwave-branded and we can control the pricing a bit more than in some of the other areas of our business.