Aldi Starting To Hurt Appliance Retailers Bigger Stores Planned
The emergence of Aldi as a retail powerhouse is not only having an impact on Coles and Woolworths but appliance and CE retailers, distributors of appliances and brands such as Sunbeam, Breville and Delonghi said one senior executive.
Also impacted are distributors who for decades have supplied the mass retailers with branded and house brand appliances.
Peter Hammerman the CEO of Seconds World said both distributors and retailers are under pressure from Aldi, he said that the quality of their house brand appliances is “terrific” and I know that their presence it is being felt in the industry” he said.
He added “What we find is that in the weeks that Aldi roll out consumer electronics and appliance specials sales drop”.
A senior manager at The Good Guys store in NSW said “What is worrying is that consumers are buying from Aldi stores and finding that the quality is excellent, they then go and tell their teenage children who have moved out of home or friends and they in turn are shopping at Aldi”.
“What is coming from Aldi is another 100 plus stores in WA and South Australia, they are also expanding their presence in the Eastern States, the bigger they get the more appliances and consumer electronic goods they will sell and this will hurt a lot of retailers especially smaller retail chains”.
Hammerman said “The quality of appliances coming out of China overall is very good, branded products from the likes of Sunbeam and Breville are made in the same factory as the Aldi appliances. I recently took a Breville and a Chinese Tiffany sandwich product home, they both delivered the same functions, the Breville product was $79 and the Tiffany $49, and ironically the Tiffany product was better”. He said.
A Harvey Norman franchisee attending the Harvey Norman Conference in Melbourne said “There is no doubt that Aldi is having an impact. The downside is that the Company is set to significantly expand their stores across Australia and this will cause further problems for appliance manufacturers”.
“Since Aldi came into the market we have expanded our range of house brand appliances and they are selling well however we have not in some case been able to match Aldi prices”.
The big winners are not only Aldi but distributors such as Tempo and Euro Centra which is owned by German Company Wunsche Group.
This week Aldi is offering a 50″ TV from Temp for $529 with over 15,000 set to sell this week.
They are also offering a bread maker for $79 and a rotisserie oven for $79.99. A Stirling dishwasher from Tempo is selling for $299, a similar featured product from The Good Guys is selling for $699.
Citigroup analyst Craig Woolford said that one area of concern is the floor size of Aldi stores.
Currently the average is 1400 square metres which he said restricted the volume or size of appliance products that Aldi could range.
He said that Aldi is currently trialling new concept stores in Victoria and New South Wales that were significantly larger than their current stores.
New information supplied to a Senate Inquiry into tax payments in Australia reveals that Aldi Australia makes more profit on each dollar of sales than its much larger rival Coles, Woolworths, Masters and BigW and has more scope to cut prices in the event of a prolonged price war with mass retailers.
According to detailed accounts provided by Aldi to the Senate tax avoidance inquiry, the discounter earned a pre-tax profit margin of 5.2 per cent on sales of $5 billion in 2013.
Brokers believe Aldi’s healthy profit margins provide the company with scope for further growth and room to cut prices amid escalating price competition.
“The financials for Aldi confirm both its success and its room for further growth in Australia,” said Woolford, who expects Aldi to continue to gain market share from Woolworths and Coles, placing increasing pressure on their margins.
“These numbers suggest Aldi’s operating margins in Australia are very healthy compared with the rest of the world and may be boosted by significant sales of high margin general merchandise,” Deutsche Bank analyst Michael Simotas told Fairfax Media.
“This provides the group with headroom for price investment if needed,” he said. “However, given the momentum, we do not believe it is needed at this stage.”
Aldi’s submission suggests that it paid $83 million income tax on pre-tax profits of $261 million in 2013 – an income tax rate of 31.8 per cent and $67 million in income tax on earnings of $232 million in 2012 – a tax rate of 28.8 per cent.
About 1 per cent of its merchandise and services expenditure is made to international related parties, the company said.