JB Hi-Fi launches direct import model, as retailers cut off the middleman

Electronics and entertainment retailer JB Hi-Fi has quietly introduced a new direct import model for some of its products, just weeks after the company said at its annual general meeting that it would do so if suppliers couldn’t be negotiated with on pricing issues.

But the move isn’t exclusive to JB – other retailers say they are cutting out the middle man and now source products directly from overseas, and intend to start doing it much more.

“We’re doing some importing, and we’re likely to increase that amount,” Everten Online founder and chief executive Hal Pritchard told SmartCompany this morning.

OzHut founder Wai Hong Fong also said this morning the company ships some products directly from overseas, saying distributors have “good stock levels, and good inventory times”.

JB Hi-Fi was contacted this morning by SmartCompany, but chief executive Terry Smart was not available prior to publication.

JB Hi-Fi updated its website on Friday to show off its new range of directly imported products, which at the moment is limited to cameras and related products. It comes after chairman Patrick Elliott said last month that “it remains open to JB Hi-Fi to import directly and bypass suppliers”.

On its website, JB Hi-Fi explains that it now provides some products acquired from international distributors, and that these products are much cheaper than alternatives supplied by Australian companies.

It explains the company has made the move due to changes in supply chain mechanics, which means it is much easier to provide a “high probability of availability and supply”. It also notes that customers have requested the move.

But there are other issues at hand. The higher dollar ensures direct imports are much cheaper than in previous years, and as the company lamented last month, working with suppliers has made things difficult.

This comes after a number of larger retailers including Target have spoken with suppliers about lowering prices. But as local online retailers suggest, it’s just becoming too easy to cut out the middle man altogether.

“The model of having a distributor in Australia is pretty shaky now,” Pritchard says. “It just adds another person into the mix and you’re not competitive on an international basis.”

“If you’ve got a local distributor, you’re just adding 30% to the cost. It means you can’t be competitive with international players, particularly with low margin products like electronics. It’s a tricky business.”

The one disadvantage here is that retailers will need to add their own warranty programs when opening direct import models. JB Hi-Fi has done just that, saying it will offer its own warranty for imported products.

Fong says this is the most difficult part of opening a direct import model, as opposed to stocking new products and expanding warehouse sizes.

“The only thing that needs to be dealt with is a warranty. So if you’re happy to provide your own warranty, then you’re fine. It’s not a difficult thing to organise.”

Pritchard says if retailers want to stay in business, they need to start looking at direct import models as local distributors lose their relevance.

“I think if you want to keep moving, you need to look at this. We’re becoming a global market, and not just competing with the local guys.”

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written by photoman001, November 21, 2011

Many retail business are doing this now, ours included. The price of a product at end sale will double for each hand that it goes through. We know that the consumer doesn't want to pay more but we need to make more to cover rising wages, freight and rents. The only way to acheive this then is to pay less for our product, lower the end price and still make more margin than previously. Most retailers are now taking less dollars than before but the outgoings are the same. The only way to combat this and stay in business is a greater margin for the dollars we are taking.

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written by Wendyl, November 21, 2011

I can see why retailers might see doing their own importing as attractive when the dollar is healthy, but there are limitations. Firstly, when doing business in Asia particularly there is still a lot of value put on business relationships that shouldn't be ignored and those relationships take time to establish. Secondly, don't forget that many manufacturers will have minimum order quantities for a price point and that might suit larger retailers like JB HI FI but not the smaller ones. Thirdly, there are still warehousing and logistics issues - again larger retailers can deal with container loads of goods, store them and then distribute them more easily than smaller scale operators. Finally, don't forget the current social trends in countries like China - it may no longer be the cheap labour capital of the world because of it's increasing middle class and labour shortages in manufacturing. To shift away from the traditional importer/wholesaler model is not necessarily a more economical move as all of the costs and expertise still have to be paid for - it is merely shifting that cost "in house". Duty, handling, freight, finance, currency losses, import insurance and warranty costs still have to be added to the end price of the goods.

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written by markoturner, November 23, 2011

This does not surprise me whatsoever.
The Aussie Middle Man has wrote both the retailers and the customers for far too long.
A similar attack is being made to get the Apple-banned Samsung tablet into the country.

There is not a single person in my personal or professional life that considers purchasing most products through the retail system of this country (golf, cycling, electronics, computers, clothing - especially sporting goods).

And this has nothing to do with not wanting to support our local retailers, and everything to do with the chronic daylight burglarly that has been maintained here.

Marko