JB Hi-Fi will purchase home appliance provider The Good Guys, this morning confirming an $870 million takeover of the rival retailer.
JB Hi-Fi announced an entitlement offer of $394 million and the acquisition will be funded through a combination of this and $500 million from new and existing debt facilities. The retailer spoke to the similar customer bases of the two businesses and said the deal with significantly expand JB’s offering in the home products market.
It’s a move that could have big implications for smaller businesses, says John Winning, chief executive of rival appliance specialist network Winning Group.
“JB Hi-Fi’s decision to acquire The Good Guys will create a more competitive playing field – especially for the smaller family businesses, like what we were five or ten years ago,” he told SmartCompany.
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JB Hi-Fi chief executive Richard Murray said in a statement that The Good Guys chief executive Michael Ford will continue with the business under the new ownership. Murray said the acquisition “significantly enhances our offering in the $4.6 billion home appliances market”.
But experts say that while the strategy behind the deal is obvious, the two operations need to beef up their online offering if they ever hope to compete in the international electronics marketplace, where price is the number one factor in sales.
“Ultimately, you can now count the number of bricks-and-mortar retailers on one hand,” says LZR Partners director David Gordon.
“They both need to bulk up their online web offering and this will surely be a focus for them going forward.”
In March online retailer Kogan.com acquired the digital offering of failed electronics retailer Dick Smith, a move that has already increased revenue and customer databases.
In the announcement statement JB Hi-Fi management said the closure of Dick Smith stores had contributed positively to JB Hi-Fi’s sales in the first two months of this financial year and the company expects to continue to see positive effects on sales through to December this year.
The company is expected to continue The Good Guys business as a separate business, although JB Hi-Fi management highlighted the purchase would provide the opportunity to “leverage the value from JB Hi-Fi and The Good Guys’ combined investments in digital assets over time”.
However, Gordon believes it is highly likely management will have to make a decision over the next couple of years on whether or not to keep the brands operating separately.
“I think at the moment JB Hi-Fi is the stronger brand, though The Good Guys is not weak,” he says.
“Potentially what you’ll see is certain categories that are very strong make their way into The Good Guys stores, and it makes sense that ‘JB Hi-Fi Home’ becomes more part of The Good Guys’ operating model.”
JB Hi-Fi expects the deal to net $15-20 million a year after a three-year integration period. But while the two companies might have similar product categories and supply chains, it’s the online world that could pose a big challenge to the success of both businesses.
“In terms of being able to compete online, I don’t think this will make any difference,” says Gordon.
“People will still go online, they’ll still investigate the price of products, it always happens.”
John Winning says that the amount of product information available in the online space means retailers will have to hone in on “experience and exceptional customer service” if they want their businesses to remain strong.
“In today’s landscape, it’s not just about which retailer has the most stores closest to the customer,” he says.
SmartCompany contacted both JB Hi-Fi and The Good Guys’ management for further comment but did not receive a response prior to publication.
This article was first published on SmartCompany.