Lockdowns, Shortages & Rising Prices Collide At JB Hi Fi
Sales at consumer electronics and appliance retailers are falling as three issues collide, a shortage of stock, rising prices due to increased freight costs, and lockdowns that are preventing consumer from visiting stores, but this has not stopped JB Hi Fi from delivering growth.
Yesterday JB Hi Fi’s incoming CEO Terry Smart flagged tough times ahead after the Melbourne based retailer reported a 15% slump in sales in the first two months of fiscal 2022 due to spreading lockdowns.
But it’s not all bad news the retailer delivered huge numbers during the same period last year, when sales grew at 35 per cent and 37 per cent respectively; the sales in the six weeks just gone are still 19.4 per cent and 28.2 per cent ahead of the same period in calendar 2019.
That’s pretty impressive given at least 30 per cent of the group’s stores were closed during the period, and often 50 per cent claimed the Australian Financial Review.
“We can see lockdowns do have an effect,” Smart said.
“We can see the strongest states are those that are not in lockdown, and those that are in lockdown are the lowest-performing.
“What we tend to see is those higher-involvement, premium-style products which people tend not to transact online … they delay those purchases until stores are open.”
Businesses such as Samsung who are currently rolling out a new generation of smartphones including the Samsung Galaxy Z Fold 3 and their Galaxy Z Flip are expensive new generation devices that need to be seen but due to lockdowns in major States of Australia they are having to rely on video and interactive tours to get their message across online.
Smart stressed the sales drop did not reflect any pull-back by shoppers fearing worsening economic conditions or holding on to cash as they feared for their job security, but rather the massive sales boosts seen through 2021 as the Covid-19 pandemic first emerged.
“Nothing is pointing to anything like that (economic concerns), it’s just simply cycling the large, unduly high, sales in 2021. If you still look at it on a two-year basis, we are still seeing significant growth. However, it is just the quantum of last year’s sales that is the challenge.”
Smart, who takes over from the outgoing Richard Murray on August 31, has spent the last three years re shaping The Good Guys with new store layouts, better engagement with brands which have delivered a b better average selling price for the retailer.
Now he is taking on the top job during one of the most difficult times that the business has faced.
Smart is experienced, he worked closely with Richard Uechtritz who led the management buy-in of JB Hi-Fi in July 2000 and was CEO and Managing Director until his resignation from these positions in May 2010, Smart was the CFO. Now he is responsible for running the business.
Analysts believe that Smart is the ideal choice to replace outgoing CEO Richard Murray.
According to Uechtritz the board were fortunate in that they had people like Smart in the Company who could take the CEO role.
Other candidates they could have called on were Cameron Trainor the current CEO of JB Hi Fi who worked alongside Smart when he stepped up from CFO to CEO of JB Hi Fi in 2011. Another candidate was current CEO Nick Wells.
Smart is seen as having an extraordinary ability to control costs while growing a business in what has been described as a brutally competitive environment.
A move into the mobile space has paid off for JB Hi Fi via their relationship with Telstra now Harvey Norman has teamed up with Optus in a desperate bid to try and strip share away from JB Hi Fi.
Online JB Hi Fi attracts over 20 million visits a month, Harvey Norman can only manage between 11 and 13 million a month according to SemRush Analytics.
The JB Hi Fi management team is seen as one of the best retail teams in Australia.
Their record in making incremental improvements that lift profitability even in difficult times remains intact.
The latest financials reveal that gross margins improved across all businesses, with The Good Guys leading the pack with a 22.41 per cent gross margin, up 189 basis points.
The cost of doing business as a percentage of revenue declined by 91 basis points to 11.19 per cent.
Yesterday the business announced full-year net profit growth of 67 per cent for the recently concluded financial year.
Smart stressed the recent sales drop did not reflect any pull-back by shoppers fearing worsening economic conditions or holding on to cash as they feared for their job security, but rather the massive sales boosts seen through 2021 as the Covid-19 pandemic first emerged.
Same-store sales growth for its flagship Australian JB Hi-Fi chain came in at 13 per cent, with total sales revenue of $5.96bn.
Smart claims that the spending spree the business saw for home office and home-schooling equipment may not be as big as it was last year, although Smart says it’s still running surprisingly hot.
The other challenge is supply chain disruption, which JB has so far largely avoided but which Smart is bracing for.
“Supply chain issues are definitely going to start to play out over the coming six and maybe 12 months,” he says.
Global shortages of computer chips are perhaps the biggest issue, and Smart told investors on Monday that leading brands including Apple and Samsung were having capacity issues.