The retailing boss points out his $5bn electrical goods empire has moved away from the discretionary end of tech to the essential end given how much tech is integrated into our daily lives.
When your iPhone crashes you need a new one, fast. When the TV no longer works properly, it’s time to upgrade. Likewise home office equipment is in constant demand as more people take on a hybrid working life.
It’s the constant evolution of JB Hi-Fi that has seen it pivot from selling cheap CDs and car stereos in an unfashionable part of Melbourne emerging as one of the best performing retailers of the past decade.
“The categories that we operate in … they’re very highly desirable and they’re very integrated into people’s lives,” Smart says.
He acknowledges that it remains an uncertain time for consumers but expects to be able to ride out the economic cycle and that JB Hi-Fi remains top of mind for shoppers.
At the same time JB Hi-Fi’s whitegoods arm The Good Guys has started to shine, being in the replacement business when washing machines, fridges and dishwashers break down. It is also benefiting from the tail of the renovation boom.
Smart on Monday delivered a 7.7 per cent lift in full-year net profit to $555m. The retailer also declared a better-than-expected final dividend of $1.53 per share, up 43 per cent on last year’s Covid hit result.
Through dividend payouts and a previously announced buyback JB Hi-Fi has returned $600m to shareholders.
Critically, his update also included a stronger than expected 9.2 per cent increase in Australian store sales during July. The sales boost has come about despite a string of back-to-back cash rate hikes and inflation.
Expanded profit margins suggest customers are valuing certainty of stock over discounting, which has put JB Hi-Fi in a sweet spot. Online sales have passed the $1bn barrier helped by last year’s Covid lockdowns and now represent nearly 20 per cent of all sales going through the JB Hi-Fi stores.
Smart has a lot more confidence on stock availability compared to this time last year, which suggests that despite the pressures of war in Ukraine, China’s Covid crackdown and tensions around Taiwan, the global economy is moving again and Australia is benefiting from this, which can help keep a lid on inflation.
The good news for consumers is that he believes the worst of the price rises might be over from his suppliers.
While new upgrades generally come with a higher price tag “we’re not really anticipating any significant move in pricing going forward”.
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Bendigo refresh
In a few months Bendigo Bank chief executive Marnie Baker will outline a refreshed strategy for the Community Bank model that has underpinned much of the regional lender’s national expansion for the past 25 years.
It’s a brave step for Bendigo, which for decades has built community banking into its DNA, and traded off the goodwill from opening bank branches where others turned their backs. But 25 years on, a review is long overdue in asking the question of what is the Community Bank model for the digital age.
When a bank branch is only as far away as your smartphone, the additional upside from operating a large physical network is limited. The exception to this is the bank being used as the town safe and providing banking services to local businesses, but it still comes at a great cost. Bendigo, like all banks, has been trimming its branch network in recent years.
Baker says there is no change to the commitment to Community Bank, rather the review is part of a regular look at all of Bendigo’s businesses, which need to adapt as the economy changes.
She says Bendigo has been working with the Community Bank partners in recent years to lower costs, but there is a broader discussion about the longer-term future to be had. “What does this Community Bank model that was born out of physical distribution look like?” she asks.
At the same time Baker says physical branch networks and digital offerings shouldn’t be seen as being mutually exclusive. And the digital economy means the definition of “communities” is evolving beyond a postcode.
With community banks, the local community joins together and stumps up the cash needed to operate the branch as well as giving it a ready-made customer base. Similar to a franchise relationship, Bendigo provides banking products, technology and compliance. Revenue is shared between Bendigo and the enterprise behind the community branch. There is also a commitment to provide funds back into the community, such as health services or the local footy or netball club.
This has worked well. There are more than 300 Community Bank branches, giving Bendigo $30.4bn in highly stable deposits. In aggregate they are fully-funded with $20bn in loans made through the bank branches.
Community banks are generally rich in low interest rate deposits because their customers are more likely to be aligned with the bank values rather than chasing pricing. This makes them highly valuable as the cash rate rises, but it means disproportionately more revenue is being shared with the community banks and not Bendigo’s shareholders.
Although it wasn’t the intention, the Community Bank network has also provided a significant takeover defence for Bendigo, adding a layer of costly complexity to ward off would-be suitors. It has also kept the big four at bay given the competition and reputational issues of buying up a largely rural banking network.
Digital transition
Under Baker, Bendigo has accelerated its digital strategy and she is updating the core platform to make it fit for the modern banking age. Bendigo’s cornerstone stake in the Tic:Toc lending platform gives it entry into the instant online lending game, powering its new Up digital banking business.
Following its soft launch last month Up Home is averaging housing loan approvals in less than a day, with the times rapidly coming down. The automation behind Up enables loan approval with as little as six minutes of human effort. At some point Up will be chasing the same customers of Community Bank.
Bendigo is a more complicated animal than its folksy charm makes out. It is the single biggest lender to share investors through its Leveraged Equities business and recently picked up a $700m portfolio from ANZ. Elsewhere it also operates the largest reverse mortgage business in Australia through HomeSafe. Its business and agri lending book of $20bn is nearly twice the size of Suncorp. Baker understands the need for all these businesses to work together to boost returns for investors.
And it was Baker who also saw an opportunity in combining Bendigo’s retail bank with Suncorp, but was cut off by ANZ’s $4bn bid for the Brisbane-based bank which would have elevated Bendigo closer to fifth pillar status.
She is in watching mode on Suncorp, but has a pointed message to Treasurer Jim Chalmers, who has the ultimate decision on the deal that regional banks, including Bendigo, “play a really important role in competition in the banking sector”.
johnstone@theaustralian.com.au
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JB Hi-Fi’s Terry Smart is one of a handful of astute retailers in Australia who has a strong read on the mood of the Australian consumer. Right now he is sensing resilience in the face of inflation and several super-sized interest rate rises.