Why JB Hi-Fi keeps defying analysts’ predictions

I was in Melbourne on business last week so took the time to catch up with my stockbroker, Charlie. Good bloke Charlie, known him for more than a decade.

We always talk about retail shares and what’s happening in retail here and in the rest of the world.

I presented at a retail conference in the middle of 2012, when JB Hi-Fi was trading at $9 a share, and Myer was sub $2 a share, I picked JB Hi-Fi and Myer as being $18 and $3 shares by the middle of 2013.

Charlie’s internal analysts still have a 2013 maximum share price on JB Hi-Fi of $10.50. It’s been around $14 to $15 for most of the first quarter of 2013. Myer has been around $3 for most of that time too.

So why does it matter what the share price of any retailer is?

For me, it’s the ultimate measure of whether the retailer is, as retail marketing guru Paco Underhill would say, “giving good aisle” to its shoppers. If a retailer is providing a great shopping experience, then, all things being equal and so long as costs are managed, more dollars from higher sales to happy shoppers flows through the tills to the profit and loss account, and then into the share price.

So why have so many analysts in so much of Australia’s banking community had a downer on JB Hi-Fi? My gut feeling is because they think it’s just like Best Buy in the US. A shadow of its former self, this US retailer has truly struggled to react to online retailing and the fall in average prices and sales volumes of flat panel TVs, PCs and cameras.

But JB Hi-Fi isn’t Best Buy. JB Hi-Fi has a clear understanding of who its shoppers are, and how to provide them with the right products at the right prices, irrespective of currency moves, parallel import laws or international or local online competitors. It never stops thinking about how to get the shopper the products they want.

In 2011, JB Hi-Fi began taking telco seriously in store, aligning with Telstra’s high-performance network just as Vodafone’s network began to collapse and smartphones requiring fast networks were being bought by late teens and 20-somethings.

In 2012, it began direct sourcing flat panel TVs to hit a price point allowing them to offer cheaper, less well-known brands to compete with lower priced international and Australian online retailers. In late 2012, they introduce white goods like fridges, washing machines and driers into key stores.

This, from a conversation I had with JB’s CEO Terry Smart, was met with shock and incredulity by the analysts. Analysts just thought this was more evidence that JB didn’t know what they were doing; another reason to discount the shares, or harder still, recommend to short-selling them.

Well, JB continues to perform well at store level. Its online offer just keeps growing, and the stores that sell white goods will benefit from the increase in housing starts and first home ownership we will see through 2013/14.

So $18 a share isn’t looking too far away, I guess. And yes, I did buy at $9.

CROSSMARK CEO Kevin Moore looks at the world of retailing from grocery to pharmacy, bottle shops to car dealers, corner store to department stores. His international career in sales and marketing has seen him responsible for businesses in over 40 countries.


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