Background: Temple & Webster was founded in 2011 and listed on the ASX in 2015 at just 75 cents per share. At its peak in August last year, the online furniture retailer was trading close to $30 a share. But the stock has since fallen below $5... with its share price plummeting nearly 75% in the past 12 months.

What happened: Temple & Webster shocked investors last week with a profit warning of 30% below market expectations. Management told the market to expect full-year earnings of just $20-22 million, which is well below its previous guidance of $30.2 million. And the downgrade knocked investors off their “designer-inspired” dining chairs.

What else: CEO Mark Coulter is blaming slowing consumer sentiment for the decline... pointing to global conflict, rising fuel prices, and cautious household spending as key pressures on sales. And now, just three months after backing aggressive promotional activity, the company is shifting its strategy. It's repricing products and scaling back discounts in an effort to improve margins.    

What's the key learning?

💡 Running promotions to chase growth sounds smart until the promotions become the only reason anyone's buying from you. Temple & Webster spent the past year discounting products to win market share from competitors like Harvey Norman and IKEA.

💡 But the risk with heavy discounting is that customers begin to expect sales all the time. Promotions can become part of a brand's identity, making it difficult to raise prices without losing demand. So revenue may stay strong, but the profit earned on each discounted sale shrinks significantly.

💡 It comes as consumer sentiment is hitting a major low. The Westpac Consumer Sentiment Index recorded its biggest monthly drop since the pandemic. So, Temple & Webster is repositioning itself now for a future with less discounting… but hopefully better margins