How JB Hi-Fi wasn’t destroyed by Amazon and survived lockdowns

The Aussie brand has shown the global retailer who’s boss with their pandemic strategy that has seen sales triple for JB Hi-Fi.

They said Amazon was going to destroy the Australian retail sector. The pandemic was their big chance. Instead, Aussie businesses are eating Amazon’s lunch, with JB Hi-Fi just the latest local hero to post a huge online performance and show the global retailer who is boss.

JB Hi-Fi has almost tripled its online sales in the space of just a year – but despite the spectacular success of its e-commerce, the company swears it is not thinking about closing stores.

JB’s Hi Fi’s profits were at record levels in the last six months of 2020 despite having stores closed for much of that time. Online sales are suddenly crazy strong - so what does that mean for bricks and mortar stores?

“The harsh reality is when customers come in store we sell them more and they buy more,” said Richard Murray, JB Hi-Fi CEO on Tuesday.

“Fundamentally an in-store customer is having a more engaged journey … you are coming in you are thinking about I want a TV, I’m thinking about it being put on the wall, I want to get a surround sound system, etc, what’s all the cables and brackets, etc,” he said.

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Aussies have been going wild for JB Hi-Fi in the pandemic. Picture: Liam Kidston.

Australia has long been slow to adopt online shopping, even for products like electronics that are popular to buy online in the rest of the world. This chart shows something many believed would take years to achieve: after years of slow but steady growth, online sales shot up in the six months from June to December.

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JB Hi-Fi's online sales have skyrocketed.

We will never go back to where we were pre-COVID, says JB Hi-Fi CEO Richard Murray.

“[We] absolutely see opportunities to go faster in online,” said the CEO on Tuesday. The online penetration has been highest where the pandemic has been strongest, and that is likely to lead to permanent behaviour change, JB Hi-Fi reckons.

“In Victoria, given the prolonged period of the lockdown, more people have decided to shop online and maybe got more comfortable with that than other states so I expect Victoria’s percentage to remain higher through the cycle just because of customer experience.”

JB’s financial returns were impressive in the first half of this financial year, but they could have sold even more stuff if they didn’t keep running out of stock, the company admits. Amid a flatscreen mania – people are upgrading to TVs with 75-inch screens or larger – TVs have been flying off the shelves much faster than they can get them in from China.

“Stock has been a constant challenge for the last 12 months,” said CEO Richard Murray. “We did notice those ‘out-of-stocks’ impacting January sales.”

TIME TO CLOSE SOME STORES?

With online shopping taking over, investors are keen to find out if JB Hi-Fi is planning to shut down any of its famous yellow-fronted stores.

They asked the question of the CEO on Tuesday and the answer was clear: No way.

“We have a store network that we really believe in. Most of those stores turn over about $20 million (a year),” said the CEO. He doesn’t want to close them, but instead “keep them relevant”.

But. There is always a but. The company is not opening up new stores like they used to. JB Hi-Fi used to open 20 new stores a year, Now it opens one or none. Online sales growth means they can sell more without having to pay rent or pay for salespeople.

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Despite their success, the retailer isn't opening new stores.

Are stores sales as old-fashioned as a Nokia flip-phone? The answer might surprise you:

Online sales are not all good from the perspective of a retailer. Those famous JB Hi-Fi hand-drawn signs can’t work their magic, and the clever salespeople don’t get to earn their commission.

That’s part of the reason to keep the stores. The other reason is it gives the customer a great feeling to leave with their new item in their hands.

JB Hi-Fi reckons it always does better when it has stores that have the product in stock for the customer to go home with.

“Our products are very here and now, and very impulse driven and I think there’s a lot of gratification from that purchase. And we want to lean into that.”

BUT NOT ALL STORES ARE EQUAL

A JB Hi-Fi store at Leichhardt in Sydney. Picture: Joel Carrett/NCA NewsWire

Some JB Hi-Fi stores are going bananas. But since the pandemic, JB has problems with getting people to come into some of their stores. CBDs are much more quiet than they were, and shopping centres are also seeing reduced foot traffic. The risk is people learn to shop online and shopping centres never fully recover from COVID.

“Traditionally … JB’s model has been … half the stores being destination stores and half the stores being in shopping centres where you have access to more traffic flow. Now, a great question for JB is what does that traffic do over the next couple of years in shopping centres,” said the CEO. The implication is that if shopping centres don’t recover, those stores might eventually have to be reconsidered.

Amazon is not moving to having brick and mortar stores. But JB is definitely moving more and more online. Amazon should watch out.

Jason Murphy is an economist | @jasemurphy. He is the author of the book Incentivology.