JB Hi-Fi defies retail downturn

Ross Greenwood speaks to JB Hi-Fi CEO Richard Murray  after JB Hi-Fi has lifted first-half profit of 5.5 per cent to $160 million, despite volatile holiday trading for the electronics and home entertainment retailer.

Interview with: Richard Murray, CEO, JB Hi-Fi

Ross Greenwood: Great to have your company here on Money News right around Australia. As we reported to you a number of times on this program, Christmas retail sales overall, according to the Australian Bureau of Statistics, were down by 0.4 of a percent, which is not good because normally you’d expect that period of the year to be going forward. The other thing also is that you found that foot traffic inside our major malls was down during that December period.

Again, not a great sign for traditional retailers, but then today you see the results of JB Hi-Fi come out and it shows that over the past year, total sales up 4.2%. In fact, like-for-like sales are still up by more than 3% during that period of time. That’s comparing the stores from last year with the stores this year, ignoring any new store rollouts that they’ve had.

On top of that, you’ve actually seen a significant increase in the amount of online sales there, so online sales up by some 21%. Now, that’s actually taken around 5.4% but that’s compared with the Australian Bureau of Statistics which says Australians now account for 8% of online shopping there.

Let’s try and find out what’s going on there. The Chief Executive of JB Hi-Fi, always great with his time. Richard Murray is online right now. Many thanks for your time as always, Richard.

Interview with: Richard Murray, CEO, JB Hi-Fi

Richard Murray: Thanks very much, Ross.

Ross Greenwood: Okay. Just a couple of things here. The retail environment right now for you, is it is tough? Are you seeing any signs of the slowdown in property prices affecting consumer’s behavior?

Richard Murray: There’s no doubt we’ve seen it more volatile and we call that out in their result. I’m a bit cautious on some of that data around shopping center traffic. I sometimes think some of those things can be a little self-serving. We mapped our data against some of that and we didn’t see the same issues in those centers, so I sometimes think people go after a bit of publicity. For us, we’ve seen the centers continue to perform strongly, and certainly, when I was out in centers in the Christmas week and Boxing Day, they certainly seem to be pumping.

Ross Greenwood: Do you think the people’s behavior has changed around Christmas shopping? Are they basically waiting and seeing the retailers going on sale early, trying to hope there might be a little bit of blood in the water. Or do you think that things such as say, the Black Friday sales and so forth, do you think they’re having an impact on the way in which shoppers behave leading into that Christmas period?

Richard Murray: Absolutely, Black Friday has become a massive retail event, and it’s not just online. Our stores actually outperformed our website on Black Friday. Our office is at Chadstone, I went down to Chadstone. I cannot think of a day outside Boxing Day, I’ve seen that much traffic in Chadstone. Certainly, in the space of two years, we have created a material shopping event, and there’s no doubt that that strength of Black Friday in November pulled forward sales from the first week to 10 days in December.

Ross Greenwood: How aggressively are your consumers now shopping your prices against either, A) online or B) your competitors? It’s so easy to do it these days. Literally, stand there with the phone in your hand while you’re comparing the new television or the fridge that you want to buy, and to literally look at across the range of other stores and then to come back and compare. Is that something that your staff have got to deal with?

Richard Murray: Yes. It’s the reality of how we operate, but I guess as the most efficient operator in our space, in some ways we’re okay with that. We think with the lowest cost of doing business, the highest sales per square meter, we’re the most efficient and you are going to get the best deal at JB. That price competition is something that’s a reality in our business, but something we lean into. There’s no doubt that consumers– While they want a great price and that’s a table stake and a given, they also want the benefits of a big brand.

They love the store network. You talk about those 8% of sales online across the broader industry, and JB’s five or 6%. I think the reality is the reason customers still go, “Actually I just might as well go to JB and grab it and get it done. I don’t want to wait at home and I don’t want a $1,000 phone sitting on my front doorstep.” No matter how good a job our logistics providers do, I think the reality is, people are pretty efficient and like “I’m driving by. I’ll just run in and grab it.”

We’ve seen massive growth in Click & Collect. 87% of our Click & Collect orders are ready under 30 minutes. The reality is from two years ago, where I think it was 46% ready in two hours, we’ve had massive improvement. Funnily enough, consumers, are still taking about 12 hours to go and pick it up. That’s okay, but we want it ready. If they want to come in half an hour, we want to get it ready for them.

Ross Greenwood: Okay. Does that also mean that you’ve had to empower your staff? They’ve always had a certain autonomy when it comes to price and cutting a deal, all that type of thing. Anybody who’s been into your stores would understand that they have that ability to cut a deal. Does that mean because the consumer is now more powerfully armed with that mobile device in their hand that you’ve really had to give them the ability to try and get that sale for you and not to allow the customer to walk out the door?

Richard Murray: We never want a customer to leave. The reality is we always want to do a deal. The challenge obviously is that nowadays, sometimes, if you’re not on the money on price, a customer may not come into the store.

We’re finding that we– What customers who come into the stores, they are coming in very, very well informed, but it’s a material purchase, and they want– The thing that I love about our staff, and the compliment I get most is, “I went into your store. I had this in my mind, but then I had a discussion with a staff member and actually understood there was a better solution or a different solution.” I still feel that is so powerful.

That is the one thing that very few online stores have been able to achieve, and we probably fail to achieve in our own online stores, is the human interaction where they go, “I’m just worried about this.” “Oh, well, if you’re doing that, think about this product.”

Ross Greenwood: Did that suggested slowdown or lack of sales at Apple over its new launches of its new phones, did that have any material impact, when they reported a profit update at one stage, were indicating it was starting to drag a little bit. They had to look for other areas for growth. What sort of impact did that have on you?

Richard Murray: Well, I think the reality is we, and I don’t want to speak too much about competitors, but the reality for us is, and the confidence customers have on with our brand is, we are an authorized reseller. There are a number of online-only retailers that bring product into the country from overseas, and so that has some different dynamics in their business.

The comforting things for customers, whether they buy it online at JB or in store at JB, is as an authorized Apple reseller, we obviously come with the full suite of warranties. Therefore, customers get an– Apple is a very important part of our business. There is no doubt, some of the new Apple products came in at higher price points and consumers are just wrapping their head around how they see the value of that.

There are also the older models that we were clearing through the channel, so that’s a dynamic. If you take something like Series 4 Apple Watch, that is absolutely flying. Series 1 and Series 2 were solid, but Series 4 is absolutely flying.

I think Apple takes a pretty broad view of the world. They’re an amazing company. They provide us with some amazing technology, and they’ve had an amazing run. I think, sometimes every company has, just around the edges, a little bit of a tough time but I think, customers will see the value that Apple products bring, and that ecosystem is pretty solid.

Ross Greenwood: The other thing also is we’re seeing a slowdown in consumer spending in China, which is obviously feeding into its economic growth. Similar things have happened in Korea. Now, when that’s happened in the past, quite often there’s been more electronic stock sent to Australia, basically at relatively cheaper prices.

Is that something that’s happened so far or is it a case where the prices are at a reasonable premium for you? At one point, of course, televisions, a lot of electronic gear got very, very cheap in Australia.

Richard Murray: No, we haven’t seen that. The suppliers are getting smarter and smarter. They are so sophisticated on how the level of stock they produce. We plan with the major suppliers out half-a-year in advance. There, generally speaking, is a bit less stock in the channel. It’s a bit tighter. That’s a challenge when it sells through and you need to get hold of more of it.

It also does help sometimes, when in the old days some retailers would overorder and that would lead to an oversupply in the channel. You’ve got to remember the US market is pretty strong at the moment. Europe’s maybe not as strong. I think the global companies out of Korea probably have many markets they can balance their stock into.

Ross Greenwood: You talked today about the key areas. The key growth areas in many ways being communications, games hardware, audio, fitness and connected technology. Which of those really surprised you over this Christmas period, this trading period?

Richard Murray: Fitness probably would be the standard in the sense of a lot of people have a fitness tracker and I think we’re all trying to get fit. Certainly, after Christmas, I am. What surprises me is how people are upgrading. I think they’re taking them from a tracker to really what I would call a smartwatch. The advantage for us with that is that’s obviously at a higher price point. You’re seeing people have their second and third-generation tracker or smartwatch and so that’s been good for us.

Ross Greenwood: Tell you what, it’s really interesting to always note this as well dividends up 5.8%, the interim dividend 91¢ per share, share price today up by 40¢, $22.98. That’s 1.7% during the day. Always great with his time, and Richard Murray, we appreciate your time here this evening.

Richard Murray: Thanks Ross.

Image source: 2GB

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