‘Shoppers haggling more on prices’, says JB Hi-Fi boss

Consumers are increasingly coming into JB Hi-Fi stores and haggling for a better deal, in a sign the cost of living crisis has emboldened shoppers to push back on higher prices.

JB Hi-Fi boss Terry Smart says that shoppers are increasingly haggling with his staff when looking to buy a new plasma television or computer, as they are heavily focused on value and are prepared to shop around for the best price amid the cost of living crisis.

The pressures on households look to have emboldened customers to haggle more and push back on retailers to come back to them with the best price or risking them walk out the door.

Those price negotiations held on the floors of his JB Hi-Fi stores are putting the pressure back on the consumer electronics giant to offer improved discounts to secure sales, and beat out rival chains, but this has come at the cost of profit margins over the December half.

“It is on-floor discounting, so it is when a customer comes, and we negotiate on price, and we have seen a lot more on-floor discounting, we have seen it increase, and it is returning back to much more a pre-Covid base,” Mr Smart told The Australian on Monday.

“Consumers are very focused on getting good value, and they are pushing harder, that’s how we operate, that’s what we do, and we want to get the sale, and we will negotiate with the customer and do everything we can to secure that sale.”

Crowds of people shopping in Melbourne’s CBD. Picture: David Geraghty/NCA NewsWire

The flip side however was pressure on JB Hi-Fi’s profit margins which were squeezed over the first half and combined with a deteriorating trading environment for electronics, gadgets and whitegoods, it saw a large drop in the retailer’s interim profit, as well as a 20 per cent cut to its dividend.

On Monday, JB Hi-Fi suffered an uncharacteristic drop in revenue and net profit, with the company’s interim dividend slashed as it kicked off reporting season for the retail sector by conceding the trading outlook has deteriorated.

JB Hi-Fi has posted a first-half net profit of $264.3m, down 19.9 per cent, with revenue for the half down 2.2 per cent to $5.16bn. Sales were slightly below analyst consensus forecasts, although the net profit was better than the $245.2m pencilled in by the market.

The retailer slashed its interim dividend by 20 per cent to $1.58 a share from $1.97 a year earlier, and payable on March 8.

Costs and profitability at its Australian JB Hi-Fi stores suffered, dragging the result lower, with heavy discounting – partly driven by shoppers haggling – impacting earnings. Its New Zealand JB Hi-Fi stores suffered a small loss.

However, shares in JB Hi-Fi rallied 7 per cent to a record high of $60.79 on the result as the market was relieved the profit wasn’t as bad as feared, that it actually beat more dour analyst expectations with the dividend – although heavily cut – was also slightly better than hoped.

It did come against a backdrop too of a worsening trading environment which was evident in its interim results while in a trading outlook also released on Monday with its December half results revealing that same-store sales growth at its flagship JB Hi-Fi Australian stores were flat at 1.7 per cent while sales growth at The Good Guys and its JB Hi-Fi stores in New Zealand had turned negative.

Mr Smart said he was pleased with the result for the first half as it cycled elevated customer demand in the prior year, but that the trading outlook had become harder to describe it as “challenging”.

“As expected, we saw the trading environment become more challenging, marked by heightened competitive activity and increased on-floor discounting. Our focus remained on maximising customer demand through delivering consistently high levels of customer service and driving best value for our customers.”

JB Hi-Fi boss Terry Smart in their Chadstone Store.

Mr Smart said the newly fashioned stage 3 tax cuts should help bolster consumer spending.

“Anything that improves consumer confidence is going to be good for us and with interest rates possibly on hold it feels like there is suddenly some good news flowing into the economy which hopefully will then take some pressure off.”

For its flagship JB Hi-Fi stores in Australia, total sales increased by 0.7 per cent to $3.62bn, with comparable sales up 0.1 per cent, driven by continued customer demand for technology and consumer electronics products, supported by well-executed Black Friday and Boxing Day promotional periods.

The key growth categories were mobile phones, games hardware, small appliances, white goods and services. Gross profit decreased by 3 per cent to $795.6m with gross margin down 84 bps to 22 per cent, driven by a combination of sales mix and increased levels of on-floor discounting. Earnings for the division decreased by 13.7 per cent to $294.6m.

At JB Hi-Fi New Zealand, sales fell 5.1 per cent to $NZ168.7m ($158.6m) and a loss of $NZ400,000 was down from a profit of $NZ5.4m. Mr Smart said the company was heavily investing in its New Zealand arm, which would see some losses in the short term, but should eventually return growth in the long term.

The company’s The Good Guys retail business saw sales fall by 9.9 per cent to $1.39bn, with consumer electronics softer in the current environment. Earnings for The Good Guys dropped nearly 31 per cent to $92.5m.

In a trading update for the month of January, the retailer said same store sales at JB Hi-Fi Australia were up 1.7 per cent, down 4.1 per cent in New Zealand and The Good Guys growth was down 2.2 per cent.

Jarden analyst Ben Gilbert described the JB Hi-Fi result as “another strong, clean result” that highlighted the quality of execution.

“We would expect consensus to come up mid-high single digit at the earnings before interest line, following the stronger result and better

trading update given comparative sales begin to get easier through the second half of fiscal 2024.

“The above said, we think there is a lot in the share price at current levels. We also see positive read-throughs for Harvey Norman given stronger The Good Guys margins.”

UBS analyst Shaun Cousins said JB Hi-Fi was showing greater resilience than currently forecast.