JB HiFi’s sales lift defied the odds, as major names like Myer and Harvey Norman report a slump, bemoaning price deflation, margin squeeze and anaemic consumer spending.
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So, what’s their secret?
Their low cost model enabled the operation to manage “abnormal levels of price deflation and competitor discounting whilst continuing to trade very profitably,” says CEO Terry Smart.
Even JB results have shown the selling price of TVs fell 24% in the past year, something Gerry Harvey also referred to last week, as Harvey’s 39% profit slump was announced.
But the retail environment is faced with both “cyclical and structural challenges”, the retailer admitted, as it announced a sales rise of 7% for the full year ending June 30 and net profit decline of 5% on FY11.
Read: JB HiFi Sales Soar 7%
Despite the issues pervading the industry at present, “not all retailers will be impacted by these challenges to the same degree. Some will benefit as the strong get stronger and less efficient retailers close.”
The ‘pack ’em high and sell ’em low’ strategy appears to be paying off – JB Hi-Fi has the lowest cost of doing business of any retailer – at 14.9% – even compared to Best Buy: 20.4%, the largest CE retailer in the world and Amazon’s 20.65% CODB.
A JB Hi-Fi store is 2.5x smaller than a traditional Best Buy store.
“We have maintained a focused model with a very clear customer proposition – we are leveraging this to grow additional online and new digital sales.”
But CE categories are not as exposed as other retail sectors like apparel, JB notes in its investor presentation FY2012:
“We believe “The JB Hi-Fi Model” is best positioned to maximise the outcomes in this sector positive customer experience.”
JB is also perceived as a young brand with the latest gear, unlike stuffy rivals like Dick Smith and Harvey’s.
Dick Smith and Retravision Southern are just two of the CE casualties of late, although an announcement on the sale of the former is set to be announced this week, with a buyer believed to have been found for the struggling Woolies-owned chain.
The yellow retailer will be able to pick up increased share as the difficult trading environment forces higher cost retailers to go under, it said today, something JB boss Terry Smart referred to in an interview with Channel News last week.
JB says it has led the CE market on lower pricing with its cameras and gaming factory scoops and direct imports; however, online rivals continue to emerge, Smart told CN last week, even as bricks and mortar goes into consolidation
JB also say it is well accustomed to changing in line with consumer trends, noting the decline of categories such as car audio, speakers and component stereos, which once accounted for large proportion of sales. (Let’s not forget JB started out as a HiFi retailer).
“We managed the decline of these categories in line with customer demand as we will do with our current software categories,” the presentation states.
The business remains highly profitable with only 2 out of 129 stores not turning a profit in FY12.
In its press statement JB also stated its online operation was driving sales, with over 927,000 visitors weekly to its site, making its one of OZ’s most visited sites.
However, direct online sales account for just 1.6% of total sales, at present. Its JB HiFi Now music streaming service will also drive web sales and growth by “leveraging its entertainment heritage” in FY13.
It also mentioned new digital services soon coming but JB’s marketing Manager Scott Browning refused to comment any further when quizzed by Channel News. It is also going live with a span new website, though there’s no timeline on this.
Its store location strategy has always been about positioning the stores in high foot traffic precincts, which also maximise “additional impulse sales”
Gerry Harvey take note.
