The Good Guys PR Machine Is Out Spruiking Again, Does This Mean They Are Looking For A Buyer?
A very private Company the mass retailer has in the past refused interviews now they are seeking publicity for a business that has undergone a lot of change during the past 12 months as exclusively revealed by ChannelNews.
Under attack on several fronts The Good Guys chief executive Michael Ford has said that “The [Muir] family is focused on building this business, not selling it,”
Currently both Aldi with their cheap house brand appliances and JB Hi Fi with their new JB HI Fi home store operation are stripping business away from the mass appliance retailer who earlier this year was sacking staff and restructuring their operation.
Now Ford is claiming that the Company is dumping their discounts for cash strategy as consumers flock to shopping online where the Company is also facing online competition from the likes of Winnings appliances, Bing Lee, Harvey Norman and JB Hi Fi.
Back in February the Company retrenched Graham Roberts’s Group General Manager of Merchandise after admitting that the group which is owned by the Melbourne based Muir Family was experiencing “an era of intense competition”.
They also said that less than 50 staff had been retrenched after ChannelNews reported that the Company was also axing staff as part of their restructure.
“Pay less pay cash is in the noose now,” The Good Guys chief executive Michael Ford told Fairfax Media this week.
“It played a very significant role in building the brand but we now have to move on to recognise we’re in a fully digitalised world and the customer has all the power in their hands.”
Insiders have told ChannelNews that senior management at the Company are concerned that the Company is seen as “an old fashioned retailer” who is out of touch with digital savvy consumers.
Analysts at the The Motley Fool said that the Good Guys has 99 stores around Australia and reportedly checks its prices 5 times a day to compete with traditional bricks-and-mortar rivals Harvey Norman Holdings, JB Hi-Fi and Dick Smith.
“I imagine the company will also be comparing its prices against those on EBay as well as other online retailers such as Grays Ecommerce Group which owns Grays Online, oo.com.au, Deals Direct and TopBuy.com.au, all of which sell home appliances, TVs, computers and other products The Good Guys stocks”.
They went on to claim that “In order to compete, The Good Guys now has to offer services that the online-only retailers can’t, such as easy replacement and repairs, protection against subsequent price reductions – things that require a customer to deal with a person, rather than a website – and its working”.
The Good Guys now has sales of more than $2 billion, the equivalent of what JB Hi-Fi does in six months, about one-third of Harvey Norman’s total annual global sales and around 1.5 times that of Dick Smith’s annual sales. Sales are growing in low single digits according to Mr Ford, and The Good Guys plans to open its 100th store later this year.
“Retailers have to constantly innovate to compete, particularly as there are now many more competitors online. The Good Guys has shown that it can do that. Removing the ‘cash price promise’ is just another step in that process” analysts said.
Ford also said that 57 per cent of The Good Guys customers research products online before they come into stores and offering discounts for cash no longer guarantees a sale, particularly in an increasingly cashless society, Mr Ford said.
Price Waterhouse Coopers (PWC) in their annual Digital Shopper study, has this number as high as 82% with other retailer’s customers with PWC analysts claiming that this low number may be a reflection on the age of the customer who shops at The Good Guys.
According to the Australian Payments Clearing Association, cash use has declined from almost 70 per cent of transactions to 47 per cent since 2007, while debit, credit and charge card payments have risen from 26 per cent to 43 per cent.
“Customers have so many other ways to pay and our online prices are the same as [prices] in store,” he said. “The power has shifted from the retailer to the consumer and the consumer has become digitally empowered.” Ford told Fairfax.
What is staying at the mass retailer is their 18-year-old Good Vibrations jingle however they will drop the reference to cash discounts and come up with another tagline.
Wesfarmers and private equity investors took a close look at the company but baulked at Chairman Andrew Muir’s $1 billion asking price. Industry insiders claim that Muir made a “fatal mistake” rejecting what was believed to be a $700M + offer at the time.
Mr Ford, who has been chief executive for 11 years, said the process was a massive wake-up call for the company, which opened its first electrical goods store in Melbourne in 1952.
Recently the Muir family has been investing in new in e-commerce software in an attempt to improve their merchandise planning and inventory systems.
The new Good Guys centralised ordering system, replaces the prior system that revolved around 92 order books for company-owned and franchised stores.
The shift secured better deals from suppliers, reducing working capital, improving stock turns and availability, and unifying the product range across the group Ford said.
“The benefits are in the mega millions – that’s been critical to us,” said Mr Ford. “We had 92 different merchandise directors cutting different deals – the suppliers loved it because they got to keep their margin while we lost our margin.”
A senior Director of a Sydney based investment Company who at one stage was involved in running a ruler over The Good Guys and was involved in the recent acquisition of a major retail group said.
“It looks like the Muirs are looking for a buyer. This is a very private Company who only talk to the media when they are trying to build the profile of the Company. The last time they went looking for PR they flew in the marketing writer from the Financial Review and that was when the Muirs were in discussions with Wesfarmers. Their investment in new operational systems are essential for any retailer today and that makes sense if they are trying to set the business up for a sale”.
“The problem that they have is that they have an ageing brand that is facing intense competition. Dick Smith is about to move into appliances, JB Hi Fi is growing their appliance business and the young teenagers are not shopping at The Good Guys. They are also facing competition from Appliances Online.
It would be interesting to see whether they are actually growing their share of the market, I suspect that they have increased profits by streamlining an old purchasing and distribution system”. the executive said.
Ford claims that the investment in a new back end system has paid off in spades. While competition remains intense and consumer sentiment is “brittle”, Mr Ford says same-store sales have been growing “in the low single digits” to more than $2 billion, and earnings before interest, tax depreciation and amortisation have grown “significantly” faster.
“We moved our margins up by one percentage point – that’s significant in a $2 billion business,” Mr Ford said. “Our average invoice has probably risen 2 to 3 per cent on an annual basis despite deflation.”
Ford was keen to point out that The Good Guys is now one of Australia’s 10 largest private companies and is worth much more than it was in 2011 and that there are no plans for an initial public offer.
Earlier this year An email obtained by ChannelNews that was sent to over 100 vendors and distributors by CEO Michael Ford outlined a major restructure of the Companies buying operation. He said that Geoff Reader had been appointed the new “Chief Merchant” for the struggling group.
In his new role Reader a long time employee of TGG now oversees all areas of merchandising including Buying, Merchandise Planning, Merchandise Operations, Inventory Management, Portfolio, Pricing and Private Label.
He also announced that Wayne Jennings has been appointed Group General Manager Merchandise, reporting to Geoff Reader.
Ford said that Jennings will now oversee all the categories sold by the Good Guys.
Jennings was the former buyer for the TGG Home Appliances business.
There was no mention of what had has happened to either Graham Roberts or Paul Malcolm the former AV buyer at TGG.