Thorn Group, the company which owns and operates Australian retail icon Radio Rentals has decided to ditch its fledgling online retail venture BigBrownBox.com.au, with managing director John Hughes saying the depressed retail sector may not recover for up to two years.
Thorn, which yesterday announced a 38% increase in net profit to $11 million for the six months to September 30, said that while its rental business is growing strongly, difficult trading conditions in the retail sector left it with little choice but to exit its investment.
BigBrownBox.com.au, which Thorn launched in late 2008, specialises in consumer electronics – a sort of online Harvey Norman.
Hughes told SmartCompany this morning that while Thorn Group “still believes strategically in online and the potential of BigBrownBox.com.au” the company had to take a pragmatic view on the business given the group’s limited resources.
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He backed comments by Harvey Norman chief Gerry Harvey, who has said price deflation caused by intense competition and the strong Australian dollar was making it almost impossible for electronics retailers to defend their margins.
“On our research and advice, it’s not going to recover for at least one and maybe two years. If you take a pragmatic view, that’s not the best place to put your efforts and financial resources.”
Hughes has also questioned the strength of the Australian economy, and says the strong performance of Thorn’s rental business – where total installations by Radio Rentals rose 5% during the last six months – suggests many consumers remain under financial strain.
“I don’t think the economy is anywhere near as robust as people suggest,” Hughes says.
He also described Australia’s unemployment figures, which show unemployment at just 5%, as a “farce”, claiming they grossly understate the level of underemployment many households are battling.
“If you are working 10 or 12 hours a week you are still employed, but you can’t put food on the table.”
Thorn says the exiting of the BigBrownBox should not have a material impact on its 2010-11 profitability, and Hughes is confident the business can be sold off.
“We’ve already had three parties contact us with regard to the business.”