Other retailers are suffering, so how is JB Hi-Fi still making a motza?
WHILE competitors are struggling, JB has posted record earnings. Insiders say it has the special sauce needed to beat Amazon.
JB HI-FI chief executive Richard Murray can be forgiven for being pleased with himself today. At a time when retailers, from Toys R Us to Dick Smith, seem to be falling over themselves to fail, JB has just seen its full-year net profit rise to $233.2 million on the back of strong sales of headphones, TVs and drones.
But it was a chart buried in its results presentation, lodged to the Australian Stock Exchange today, that tells the most interesting story.
JB Hi-FI is now the world’s seventh largest electronics chain. An extraordinary rise to global fame for a shop that began life in suburban northwest Melbourne and still only has stores in Australia and New Zealand.
Mr Murray told analysts it was another year of “record sales and earnings” for the group that, as well as having 201 JB stores, also includes 102 The Good Guys branches, which the firm bought for $870 million in 2016.
“It was another strong result for the JB Hi-Fi business in Australia, as we continue to delight our customers and deliver on our strategic objectives,” he said.
But retail experts have drilled down further into JB’s strength, telling news.com.au the firm has succeeded by buying out competitors, cultivating a reputation for knowledgeable staff and providing a shopping experience “not dissimilar to Aldi”.
On Monday, JB announced a 35 per cent rise in its full-year net profit while underlying profit after tax rose 12.3 per cent. In total, Australians and New Zealanders pumped $6.85 billion through its registers, a 21.8 per cent rise on last year. In JB-branded stores, comparable sales rose by more than 6 per cent.
Online sales were up 32 per cent and now constitute almost 5 per cent of total sales.
There were some less bright patches, however. Software sales sagged and margins, the difference between what a product is bought for by the store and what it is sold for to the customer, tightened as JB was forced to drop prices.
The Good Guys’ comparable sales growth was just 0.9 per cent, which Mr Murray put down to “challenging” conditions in home appliances.
‘NOT DISSIMILAR TO ALDI’
But overall, retail watchers said JB Hi-Fi was doing remarkably well.
“JB Hi-Fi is a good story. Six per cent comparable store growth in any market in retail is a good result,” Brian Walker, chief executive of retail consultancy Retail Doctor, told news.com.au.
He said despite all the ominous noises surrounding the rise of online for bricks and mortar retailers, 93 per cent of Australians still chose to shop in a physical store.
And JB was a master at that game with a wide footprint, an even wider range and a compelling in-store experience. It had diversified from, well, hi-fis, to just about everything from phones to fridges.
“One of the underlying strengths of JB is this sense of bargain shopping, which is not dissimilar to Aldi. Also, like Aldi, when you visit a store you have a sense of spotting things that might be new.”
Queensland University of Technology retail expert Associate Professor Gary Mortimer said JB had delivered “good numbers”.
“The first factor that has contributed to this performance is their business model. Unlike Harvey Norman, JB Hi-Fi doesn’t have a franchise model,” he said.
“That means for a Harvey Norman franchisee, they are not only paying for the cost of goods to sell they are also paying marketing levies and franchise fees and that limits their ability to remain competitive.”
Then there is JB’s staff: “If you look at team members, they are very engaged in the product, whether that’s vinyl music or wearable tech or drones, they seem to have a level of expertise in their staff,” said Prof Mortimer.
With the addition of The Good Guys, the group was also now able to buy in bulk. JB said today they intended to squeeze even more out of The Good Guys takeover, by combining the two brands’ support offices.
But the brands would remain separate, with a JB brand aimed at “young tech savvy” shoppers and The Good Guys targeted at “home-making families and Gen X demographics”.
So, how has JB managed to succeed where Dick Smith electronics so spectacularly failed?
Prof Mortimer said Dick Smith simply couldn’t provide the range of JB Hi-Fi.
“Dick Smith struggled because their stores generally sat in shopping centres and so they were smaller and that constrained the range they could offer,” he said.
The purchase of The Good Guys and the demise of Dick Smith also had the effect of removing two of JB Hi-Fi’s biggest competitors from the marketplace.
Mr Walker said the squeeze of JB’s margin was a concern and it “suggested they have bought some sales”.
However, both he and Prof Mortimer said the company was well placed to fight off competition from the online giants.
“JB has a good online presence so by developing a level of trust you encourage customers to stay with you rather than with Amazon or eBay. While having a physical presence means if you are gifted, say, a digital camera and it’s not what you’re looking for you can always go into a store and exchange it,” Prof Mortimer said.
Sure, there were those customers who would browse in store and buy online from rivals. But having both physical stores and an online presence was key to JB’s future success, Prof Mortimer said.
“There’s a component of consumers that want multichannel, they want the convenience of online but also want the physical experience of talking to an expert.
“They want to see the pixilation on the TV screen and hear the sound from the Bose stereo and you can’t get that online.”
First published on news.com.au on 14 August 2018.