Retail is a tough industry, especially when you operate in the consumer electronics space. Technology is exciting but a lot of it can be considered disposable, with low profit margins to boot. Dick Smith became the latest victim of the competitive retail business when it went bust a few months ago. But JB Hi-Fi stands firm and continues to go from strength to strength. How has the company changed over the years to survive the online retail onslaught on bricks-and-mortar businesses? Let's take a closer look.
JB Hi-Fi released the financial results for its last financial year. The retailer has reported strong results, no doubt benefiting from the collapse of one of its biggest rivals Dick Smith. JB Hi-Fi 's net profits went up by 11.5 per cent to $152.2 million. Sales jumped by 8.3 per cent to $3.95 billion and the company is looking to open new stores. This sent JB Hi-Fi share prices soaring.
These results are impressive given that its competitors have struggled and perished in the ruthless retail scene. We've already mentioned Dick Smith's demise. Harvey Norman has gained some momentum but it's far from healthy. Physical retailers also have to constantly weather the pressure from online retailers from overseas that can offer technology goods for cheaper. Real estate isn't cheap and JB Hi-Fi has over 200 physical stores.
So how does JB Hi-Fi continue to thrive in such a hostile environment?
Jumping on change
One of the reasons for JB Hi-Fi's success is illustrated in a graph that was shown in one of its financial results presentation slides. It shows how the company's product mix has changed throughout the years:
As you can see, the product range at the retailer has evolved rapidly to follow new trends in the technology space. Indeed, part of JB Hi-Fi's strategy is to be the first to market with new technologies.
Now, with increasing threat to the disposable consumer electronic goods business, JB has jumped at the chance to acquire The Good Guys to get a greater foothold in the home appliance space. While it's easy for people to shop around online for consumer goods that don't costs too much, many are still uncomfortable buying larger home goods such as TVs, washing machines and fridges online and prefer the in-shop experience.
"The home appliance market in Australia is circa $4.6 billion, larger than many of the other categories JB Hi-Fi operates in and presents a significant opportunity for the company," JB Hi-Fi said in its presentation.
Another way JB Hi-Fi is combating the threat from online retailers is to try and beat them at their own game. Its online sales grew by 35.8 per cent in the last financial year and accounted for 3.0 per cent of total sales.
Rather than treating online retail as a separate side business that is often neglected, JB Hi-Fi approaches it as an extension to its physical outlets.
"We have appointed a number of new staff with strong digital experience who are focused on building a great customer experience in our product categories," the company said in its presentation.
While it's difficult to completely match overseas online retailers on price, many people wouldn't mind spending a couple of dollars more to buy from a local retailers because they don't have to worry about long shipping times and having to interact with customer service representatives that operate in a different time zone.
Retail is notorious for its high staff turnover rates. It can also be a toxic and demoralising environment for workers as it's often heavily driven by sales. This can have a major impact on staff attitude and performance.
What JB Hi-Fi has really done well is build a reputation that it’s a good retailer to work for. Over the years, the company has garnered attention for allowing its staff creative freedom to market its goods with tongue-in-cheek messages on store shelves and hilarious displays; it has become a bit of a tradition.
In its financial presentation, JB Hi-Fi called out "high level of customer service" and "passionate and knowledgeable staff" as part of its business model.
I can't speak for everybody's experience with JB Hi-Fi workers, but the company did come out on top in the AMR 2016 Corporate Reputation Index, which measures overall reputation and how Australians feel about companies based a number of factors including products and services, innovation and workplace.
JB Hi-Fi's success is encouraging in an industry that seems to be suffering as Australians become more savvy and favour online shopping. While the Australian retail industry has claimed many victims, it's nice to call out a company that seems to be on the right track by constantly re-evaluating and changing its business accordingly. There are definitely lessons here that other retailers can learn from.