JB Hi-Fi calls end to rampant discounting: Five lessons from the company’s success

The retail industry hasn’t received any good news for a while now, so it’s no wonder shares in JB Hi-Fi surged 13% yesterday after the company announced its net profit increased 3% in the first half of the year to $82.1 million.

JB Hi-Fi has had a tough couple of years, despite relatively stable financial results. The company’s shares are some of the most shorted on the ASX. But since the start of the year, JB Hi-Fi’s shares have increased by 21%.

But the company’s latest result doesn’t just come from a customer base ready to spend again – continued reports from consumer confidence analysts show Australians still aren’t ready to hand over their cash.

Instead, JB Hi-Fi under chief executive Terry Smart has increased sales through an increasing devotion to the online store and by focusing on cost-cutting to improve margins.

It’s a testament to the company’s strength that in the last six months, like-for-like sales dropped by 3.5% while gross margins increased by 30 basis points.

Not only does Smart say the business is working on new ways to increase sales, it’s also refusing to discount. In fact, Smart says the discount wars of the past few years may disappear.

“The market is still very aggressive – the pricing you still see on a daily basis makes you shake your head…but what we’re saying is we’re not going to see what we saw last year with 40% and 50% off, which you just can’t do in these categories,” he told The Australian.

With JB Hi-Fi staying ahead of the rest of the troubled consumer electronics market, here are five lessons you can take away from the company’s strategy:

Stop discounting ASAP

The retail market has been on a discount rampage for a few years now, partly due to the global financial crisis but also partly due to eager retailers battling against consumers who simply don’t want to spend.

And while JB Hi-Fi was a participant in that, Terry Smart says the end is in sight.

“In the long term we have to be globally competitive, so we have gone to suppliers to achieve as close to global pricing as possible,” he told the Herald Sun. “It’s still very aggressive, but we are not seeing those really heavy 50% discounts.”

Experts have always said retailers need to know when to discount and when to ensure prices remain at a sustainable level. It seems Smart understands the future of the business – and the industry – will become more solid when the discounts disappear.

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