‘Clever trick’ to JB Hi-Fi’s success
You have to see what happened to JB Hi-Fi during lockdown. The tech retail chain just reported its profits for the last financial year, and it turns out that for them lockdown was an all-you-can-eat buffet, a carnival, a giant bacchanalian feast of profit.
Look at this chart. It shows sales growth in the four quarters of last financial year. The first three quarters were very strong, but the last quarter, covering April, May and June? It went off. Total sales went up 31.4 per cent.
JB was in a real sweet spot. There were two separate rivers of money flowing through the Australian economy in 2020: People working from home and people getting free money from the Government.
Both those rivers ended up flooding JB Hi-Fi. We bought computers and monitors, cables and mouses for work. Plus we bought TVs and games systems for play.
JB Hi-Fi reports sales of movies and music fell, but hardware sales just wouldn't stop rising.
The result of this feeding frenzy is the big yellow retailer saw an unbelievable 32 per cent increase in net profit after tax. That stands out in the Australian business environment right now.
There's a famine on for most businesses: They are at risk of dying. But JB Hi-Fi just keeps getting fatter.
If you're worried about local shops going broke, you should be. There will be vacant shopfronts next year. The shopfront with all the big yellow paper signs will, however, not be one of them.
These profit results tell us JB Hi-Fi is going to survive - maybe even grow. If you're looking for a job, it's one of the safer choices. There's probably worse companies to work for: JB gave staff a $1000 pandemic bonus back in June.
The share market very much likes what it sees when it comes to JB Hi-Fi. If you pulled $10,000 out of your superannuation in mid-April, and put it into JB Hi-Fi you'd have $15,400 now. As the next graph shows, its stock price is at a record high.
TRICKS TO ITS SUCCESS
Don't assume success is guaranteed. Retailing is hard. Dick Smith was basically in the same business as JB and it died an ugly death. JB survived and thrived, and that is not by accident. It is very clever. It uses a bunch of little tricks to keep us coming back.
One of those tricks is giving customers the chance to haggle over prices. That makes people happy - everyone loves a discount.
Another favourite is using hand-drawn posters all over the store. This creates the impression JB is keeping costs low. Believe me, this is a multi-billion dollar business - it could get signs printed. But hand-drawn signs mean it doesn't feel like a gigantic mega-corporation. It feels friendly.
JB Hi-Fi is big business though. It recently took over The Good Guys and its financial report talks blandly about the opportunity for "further consolidation," hinting it could possibly take over more rivals. JB also owns stores in NZ and I wouldn't be surprised if it did more international expansion too.
JB still only does 7.5 per cent of its sales online. If it faces competition from one company, it would be Kogan. The online retailer specialises in electronics but also sells a bit of everything.
Kogan is also listed on the stock market and it has been going even better than JB Hi-Fi this year: If you'd put $10,000 into Kogan in April you'd have over $30,000 now. Its sales went up almost 70 per cent in the first half of this calendar year.
JOBKEEPER AND JOBSEEKER
JB has been a huge beneficiary of JobKeeper and JobSeeker, with people no doubt spending their government payouts in store. Also, more than half of superannuation withdrawals were spent on discretionary purchases and it is doubtless the case that some of those discretionary purchases were shiny Apple products sold by JB Hi-Fi.
But can it keep things going? The future is always uncertain, but the answer is so far, so good.
As well as giving a report on the financial year that finished in June, JB gave us a sneak peek at how sales have been going in July. Unbelievably, it managed to accelerate even more. The company reported comparable sales growth of 44 per cent in the month.
JB has come a very long way from when it was a small store in the Melbourne suburbs, run by a man called John Barbuto. The pandemic is sorting out the weak from the strong and it's becoming obvious that on the other side of things, JB is going to be even more dominant.