Why JB Hi-Fi is smoking its rivals
GUYS, we found out where all the money went. Those tax cuts everyone thought we haven't been spending? Apparently it is all going to JB Hi-Fi.
Retailing is supposed to be hard right now in this country. Retail spending has collapsed to 0.1 per cent in trend terms in the most recent month. The corpses of failed retailers litter the battlefield. But JB Hi-Fi is smirking and twirling its moustache.
It just posted an update on the first three months of the year and sales in its Australian JB Hi-Fi stores are up 4.7 per cent.
As the next chart shows, the stock market likes what it is seeing. JB's share price hit new highs this week. The share price of Harvey Norman is included for scale.
How do they do it when other retailers find it so hard? Furniture retailer Nick Scali recently issued a profit warning. Super Retail Group, which owns Super Cheap Auto and Rebel sport, is complaining about "cautious consumers". David Jones recently wrote down the value of its business by nearly half a billion dollars
So, what's the JB Hi-Fi special sauce? What are its seven secret herbs and spices?
One theory is that JB is just in a sweet spot, after the demise of Dick Smith and before the rise of Amazon. Remember after Masters collapsed? Bunnings was like a pig in clover for a couple of years there. This theory suggests the ascendancy of JB Hi-Fi is a temporary phenomenon, related to competitive conditions that will prove transient.
This theory is tempting, and it contains grains of truth. Any retailer is just one good competitor away from disaster. But the success of JB Hi-Fi is not just a temporary phenomenon. It has been growing ever since 1974, when a bloke named John Barbuto began selling hi-fi systems at a shop in a suburban strip in Melbourne's northwest.
Barbuto sold the company in the 1980s, and the new owners sold it again in 2000 to private equity. (This, obviously, was back when private equity didn't burn everything it touched.) JB Hi-Fi was then launched on the stock market, and now it is an Australian institution. It lives despite enormous changes in the industry, including the gutting of its once lucrative CD and DVD business. (I shudder to think how much money I spent on CDs there in the late 1990s, and how proud I was of my huge CD collection.)
BRICKS VS CLICKS
In theory, the stuff JB Hi-Fi sells should be possible to buy online. A TV is not perishable. An iPhone is small enough to deliver easily. But the reality is that, for a lot of electronics, we still like to go in to the shop. How does the new 8K screen look? How does the new phone feel in the hand? How do the speakers sound? It's not like books or CDs or a litre of milk where you know what you're getting.
JB has a website and it delivers. But most people don't care. Only 5.5 per cent of sales are made online, and 94.5 per cent are made in the store, surrounded by the big yellow handwritten signs, and the staff with all their piercings and dyed hair.
About those signs. Yep, the staff write them. Obviously JB Hi-Fi is a massive mega-corp with billions in sales and over a billion in gross profit. If it wanted to print out professional, corporate-looking signs, it totally could. It chooses not to. And why? Because it knows it's smarter not to. It makes your local JB seem local, and it makes the staff feel like they are part of things.
And, yes, the staff are encouraged to use their personality. And, yes, they sometimes sail a bit close to the wind.
I checked the staff ratings for JB Hi-Fi on Glassdoor and Indeed, sites where people get to complain about their employers. You see a lot about how the sales targets are too high, how it can be stressful to make budget and how you get fired if you don't. But overall the ratings the staff give to the company are not too bad. At Harvey Norman, meanwhile, the complaints are stronger and the ratings lower.
This is clearly part of the management strategy at JB. The instore experience can be ordinary at times, but if it's not totally horrific that's because the staff are fairly engaged. That's what's working for the company. First, get customers in the door and then make sure the experience they have in the store is above a certain minimum level.
Of course, not everything is working at JB Hi-Fi. Recently, the company bought whitegoods retailer The Good Guys. Sales there fell -0.5 per cent in the first three months of the financial year.
There's a page in its annual report that has two pictures, showing the staff of a JB store, next to the staff of a Good Guys store. The difference is highly visible.
Maybe, if they want to repeat the success of JB, they just need to get The Good Guys to loosen up a bit?