JB Hi-Fi chief executive Richard Uechritz is being hailed as one of Australia’s best retailers after his company produced a 45% rise in net profit for 2008-09 and predicted sales would soar by a further 20% in 2009-10.
While its main competitor Harvey Norman managed sales growth of just 4.5% as the downturn whacked consumers, JB Hi-Fi increased sales by 27.3% to $2.3 billion.
And despite heavy discounting in the electronics space, JB Hi-Fi managed to increase its margin on earnings before interest and tax from 5.6% to 6.1%.
So what’s behind these fantastic results? Let’s take a look at a few of JB’s winning ways.
- Cheap and cheerful. JB might be awash with cash at the moment but don’t expect Uechritz to begin a store refurbishment program – he likes his stores to look like a cross between a second-hand record shop and a discount grocer. The no-frills image (which extends to the hand-written posters in stores and el-cheapo catalogues) perfectly positions the brand as the “value” offering in what is a very competitive sub-sector of the retail industry.
- Store sites. Most JB Hi-Fi outlets are located in shopping centers rater than standalone bulky goods centres (where most Harvey Norman sites can be found). By locating in shopping centres, JB is able to take advantage of strong foot traffic and can keep marketing costs down.
- Buying power. JB has always been able to undercut independent music stores thanks to its buying power and this has only increased as the chain’s footprint has increased. Indeed, such is the chain’s power that any record label will do special giveaways to JB customers as part of an album launch.
- Diversification. While JB started out as a music and electronics store, it’s ability to push into the computer, gaming market and telecommunications markets has helped insulate it from trends such as illegal downloading and file sharing.
- Fast and profitable growth. JB has rolled out 50 stores in the past three years, while still managing to reduce its cost of doing business and improve its gross margin. So often, fast growth means lower profits, but Uechritz and his team have avoided this.
- A brilliant management team. While many electrical goods chains have struggled in the downturn, Uechritz has managed to grow profits, sales and market share. SmartCompany has spoken to him on a number of occasions this year and his answer to the question of what works in a downturn is always the same.
“The overall matter is, it’s just good retailing. It’s our focus on costs, that is, having a low-cost retail model, ensuring we have the right products at the right prices, and asking whether we have the good staff to sell the products. We make sure we look at our stores, and all those other things a retailer should do. Obviously, at the moment we’re doing them.”
