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Indian Retail Group Runs Ruler Over The Good Guys

A large Indian retail group who several months ago ran a ruler over the Dick Smith operation is now in discussions with the owners of The Good Guys according to sources.

The group who own consumer electronics and appliance stores are believed to have hired former JB Hi Fi executives to consult on the potential acquisition of the mass retailer.

An Australian Competition and Consumer Commission executive told ChannelNews that they had also been approached by a consultant representing an Indian retail group.

The consultant wanted to know how many submissions had been made to the ACCC concerning the proposed acquisition of The Good Guys by JB Hi Fi.

Back in February, The Tata Group who own the Infiniti retail chain met with Dick Smith administrators, in the end they chose to walk away from the acquisition.

Currently the ACCC is taking submissions from parties with an interim ruling set to be made on August 4th.

Several analysts have said that a merger between JB Hi Fi and The Good Guys is not without its risks.

The merger will deliver for JB Hi Fi significant appliance market share Cit Equities analysts recently concluded in an extensive appliance industry report.

Currently JB hi Fi have around 3% of the overall appliance market Vs 21% for The Good Guys and 29% for Harvey Norman.

The Good Guys is approximately half the size of JB Hi-Fi from a sales and store network perspective, with a highly complementary category mix.

Cit said that as JB Hi-Fi’s store roll out has matured, it has continued to pursue growth opportunities. With HOME proving a challenging organic roll-out to date, The Good Guys would deliver 45% to 50% sales and EBIT growth upon completion.
They said that they expect The Good Guys to generate FY17 sales per sqm of $9,400, approximately half that of JB Hi-Fi ($18,900 per sqm) and in line with the broader appliances category ($8,000 – $12,000).

Most of this differential is explained by category mix, with appliances much less productive than consumer electronics products.

‘Despite lower sales per sqm, appliances are an attractive category, with stable pricing and demand while also delivering higher gross margins” Cit analysts said.

They added that JB Hi-Fi’s expansion into appliances is logical and necessary in order to sustain growth, given the ‘favourable appliances category dynamics, Structural decline in software sales, and the natural fit of appliances with JBH’s core categories.

A report prepared by Citi said that ‘Recent channel checks suggest JB Hi-Fi is beginning to deliver improved sales momentum following promotions in large appliances, and is trading well in both entry level and premium product ranges. This is consistent with JB Hi-Fi’s strengths in executing around promotional periods”.

They said that JB Hi Fi’s move to establish their HOME operation was helping the retailer deliver overall growth.

“The surprising 1H16 JB Hi-Fi result (7.7% sales growth and 9bps of EBIT margin contraction) is likely to be repeated 2H16e and FY17e, due to the impact of the HOME roll-out on sales and earnings” Citi analysts said.

They added “JB Hi Fi’s sales growth is highly dependent on HOME in FY16e and FY17e. We estimate HOME will add over 200bps to comps over this period, driven by a combination of 1) additional 400sqm per HOME store; 2) maturation of the category driving increased sales per sqm; 3) mix benefits as declining categories are replaced by steadily growing appliances, albeit at lower sales per sqm.


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