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JB Hi-Fi:

A Business Model To
Survive And Thrive
By Steve Barrile
Teacher of Business Management at Fitzroy High School, consultant, writer and publisher

This is the first of two articles focusing on one of Australias


most successful retail companies-JB HI-FI. In this edition,
we will look at the development of the business model that
has allowed the company to not only survive in the turbulent
economic environment of recent times but also grow and thrive.
The second article will focus on the marketing strategies used
by the company.

A clever diversification and growth strategy


The response to the drift to thrift approach taken by many
consumers in recent times
Commitment to a low cost and low risk.

Introduction

Company Snapshot

Before we examine each of these in detail, let us get a picture


of JB HI-FI as a company and build understanding of some key
aspects of its external environment.

In the late 1980s and 1990s when TV advertising was central to


any substantial retail companys promotion, the cry of JB
Youve done it again was frequently heard. During that time
JB HI-FI was a successful retailer of recorded music (initially
vinyl records, later CDs) and specialist hi-fi products. The
company has changed with the times since then and is now,
arguably, Australias largest home entertainment retailer. It
certainly has done it again by repeating, and indeed, building
on the success of the early years of the business. But how has it
done it? The answer lies in a combination of factors that include:

The major characteristics of JB HI-FI and relevant market


data are outlined in Table 1. Simply put the company is a
successful speciality, discount retailer of branded home and
entertainment products. These include consumer electronics
(computers, TVs, surround sound systems, mobile phones
etc.) for home and car, music and DVDs and white goods.
The first store was opened in the Melbourne suburb of East
Keilor in 1974 and the company has experienced steady
and substantial growth in what is considered to be a highly
competitive industry.

Figure 1: JB HI-FI Store

Source: Wikipedia Commons


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The second external consideration relates to the characteristics


of the marketplace. Retail home entertainment (as the main
product focus or staple category of JB HI-FI) is highly
competitive but highly concentrated industry sector. In recent
years Harvey Norman and the Good Guys, along with JB
HI-FI have dominated market share. Other companies such
as Clive Peeters and Retravision are struggling. Smaller,
independent outlets have all but disappeared.

Table 1: Company Snapshot

Publically listed on the ASX in October 2003


Net Profit After Tax (NPAT) up 45.10 per cent to $94.44m
for year ended June 30, 2009
1582 employees in 137 stores across Australia and
New Zealand
Over 10,000 individual and institutional shareholders
Achieved sales of $2.33b in 200809 financial year
Achieved 8.4 per cent sales growth in the first quarter of
the 200910 financial year

The third consideration is the speed of technological


development in the industry. The marketplace, particularly
for home entertainment products, is continually churning.
This means that it is rarely static with change after change
being seen in products. Think about developments in mobile
phone technology (with internet browsing capacity), home
theatre systems (now using Blu-ray disks) and computers (with
incredibly fast processers and capacity) and it is not difficult to
see that retailers are constantly in a state of change in relation
to product and service provision.

STUDENT ACTIVITIES

1. What was the message behind JB HI-FIs successful TV


advertising campaign in the late 1980s and 1990s?
2. Outline the range of products sold by JB HI-FI. When JB HI-FI
started in business what were their biggest selling products?
3. Describe the factors that have helped JB HI-FI to become one of
the most successful home entertainment retailers in Australia.
4. JB HI-FI is a publicly listed company. What does this mean?

So with these and other external factors, how do we account


for JB HI-FIs success in recent times? Let us examine key
aspects of its business model.

The External Environment

Diversification And Growth

Before looking at the success factors at JB HI-FI, it is worth


spending a little time understanding the external context in
which the business operates. The first, and arguable the most
significant consideration, relates to the economic environment
of recent times. The Global Financial Crisis has been well
documented. Interestingly its (negative) impact on retail
businesses such as JB HI-FI has been much less than expected.
The logic was that, given the shortage of funds available in the
economy, threats to employment security and low consumer
expectations, it was expected that sectors and businesses
of the economy that rely on discretionary spending would
experienced considerable difficulty. Given the sales and profit
figures of JB HI-FI, that has not been the case. In fact it has
defied the economic downturn. It could be argued that this
situation has been the result of factors we will discuss shortly.

Diversification refers to a strategy where a business spreads


the number of areas in which it operates in order to decrease
risk. In retail it usually relates to the product mix that it carries
over a period of time. JB HI-FI has diversified its business from
predominately selling music CDs and is now a major retailer for
a broad range of branded home entertainment products that has
steadily grown in recent times. By way of example, in early 2005
the company entered what was then an $800m market for console
games. It trialled games in 10 stores and then it was rolled
out nationally. Interestingly the games player demographic is
typically 18-39 which is also the largest demographic of shoppers
at JB HI-FI. In another diversification activity, the company
established its digital store in October 2006. Growth (in sales) is
achieved through this type of diversification. JB HI-FI like many

Figure 2: Number of stores by year

18 JB Hi-Fi stores expected to be opened during FY10 and includes:

NSW: Eastgardens, Moore Park, Top Ryde, Sydney CBD, Albury, Wollongong, Artarmon

QLD: Brisbane CBD, Rockhampton, Townsville

VIC:

Malvern, Shepparton, Bendigo

WA:

Perth CBD, Mandurah

23 stores expected to be relocated or have major refits

1 Hill & Stewart store at Westgate (NZ) to be converted to JB

141
123
89

10

15

21

26

Acquired

2001

2002

2003

July 200

32
2004

48

2005

Total Stores

Source http://www.jbhifi.com.au
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105

66

2006

2007

2008

2009

2010F

other retailers also achieved growth by increasing the number of


stores. Figure 2 highlights the increase in the number of stores
since 2000. It still remained committed to opening 15 new stores
during 2009 despite the challenging economic circumstances. In
addition they acquired 70 per cent of the Clive Anthony chain of
stores in 2004 and recently acquired the remaining 30 per cent.
These stores specialise in large whitegoods, cooking and air
conditioning systems.

obligations (it does not own the bricks and mortar stores) and
would carry large retrenchment commitments if things went
wrong. However through its very positive sales growth over
recent years it has passed the stress test with the injection of
funds these sales have generated allowing debt to be reduced and
allowing company growth. Risk becomes low and manageable.

JB HI-FI has defied the current and recent past economic


conditions. This has not happened by chance but rather is
the result of developing a business model that has not just
focused on survival but has also allowed it to thrive. It may be
approaching its full potential in the near future and it will enter a
new phase where it might be said JB ..you have done it again!

STUDENT ACTIVITIES

5. Why is continual change such a feature for businesses like


JB HI-FI that sell home entertainment products?
6. What is the main demographic of consumers that shop at
JB HI-FI? What products did they introduce in 2005 that would
strongly appeal to this target demographic?
7. Why do you think many retailers, like JB HI-FI, have pursued a
strategy of diversification to grow their business?
8. How has JB HI-FI been able to grow their business through
acquisition of other businesses?

References

JB-HI FI website, various pages


www.jbhifi.com.au
Accessed January 1220, 2010
Dun and Bradstreet Company360 Report: JB- HI FI (November 2009)
Robert Gottliebsen Vindication for JB Hi -Fi Business Spectator September 24,
2009 accessed on Jan.15, 2010
Ella Morton JB Hi-Fi launches music store cnet australia October 10, 2006
accessed Jan.14, 2010
Wikipedia.com.au accessed Jan. 11, 2010
<www.business day.com> accessed Jan. 11, 2010

Drift To Thrift

If the current economic conditions have not led to negative


impact of JB HI-FI, it is worth noting that consumer behaviour
has changed. It is the ability of the business to adapt to this
change. Observers have commented on the drift to thrift
by consumers. This means they are focussed on price and
JB HI-FI has proven to be very competitive in this area. The
company chairman, Patrick Elliot told shareholders in October
2009: The company has won customers that may not have
previously shopped in our stores and now the opportunity is to
keep those customers as economic conditions improve. Price
competitiveness and increased customer base results in higher
margins across the business through the increase in sales volume
despite lower margins on each individual sale.

STUDENT ACTIVITIES

9. Outline the strategies used by JB HI-FI to make them have the


lowest cost of doing business of any listed retailer in Australia.
10. Describe how JB HI-FI has been able to reduce their balance
sheet risk.
11. Define each of these terms in their correct business context:
diversification, institutional shareholders, white goods,
discretionary spending, churning, balance sheet and bricks and
mortar stores.

Further Activities:
(a) Evaluation and Analysis
1. Go to <www.jbhifi.com.au> and select Corporate. Now select
Reports to read more about JB HI-Fis financial performance
in recent years. Suggest three financial and three non-financial
performance indicators that the business could use to evaluate the
success of the business in the coming 12 months.
2. JB HI-FI operates in an environment with many external factors
outside the businesss control. Describe how external factors like
the economy, technology, changes to the law and environmental
factors could have an impact on a home retailer like JB HI-FI.
3. The Global Financial Crisis (GFC) had a big impact on the
performance of businesses all over the world. How did JB HI-FI
perform during the GFC?
4. As a result of the GFC, many consumers are becoming thriftier
and like to shop around for the best deals. What implications will
this have on the business model of JB HI-FI?
(b) Application and Extension
1. JB HI-FI has made their name by promoting themselves as
offering low prices. Prepare a table that compares the prices of
the following products: (1) The iPod Touch 8GB, (2) Panasonic
42 inch plasma television and (3) Garmin 4.3 inch Portable
Navigation system. You should compare JB HI-Fi with Harvey
Norman <www.harveynorman.com.au> and The Good Guys
<www.thegoodguys.com.au>. Comment on your findings.
2. As a publicly listed company it is possible for anyone to buy
shares in JB HI-FI. Prepare an investor fact sheet that summarises
important information for potential investors such as the
number of employees at JB HI-FI, the number of stores, level of
sales, products sold, current share price and any other relevant
information you think an investor would want to know.

Low Is The Word!

Some things in business you want to be low- obviously not sales


or profit! Elements that should be low include costs and risk.

Low cost

JB HI-FI has the lowest cost of doing business of any of


the listed retailers. It has achieved this through a number of
strategies including:
Reduced support staff for senior managers, no layers of
investor relations or media communications staff.
Ensuring labour costs are at the right level for sales achieved
or expected. The business ensures they have the right
amount of people at the right time.
No use of a warehouse network and the associated costs
such as rent and insurance. Using the high sales model they
order stock from suppliers, have it arrive one day and sell it
the next.

Low risk

Respected business commentator Robert Gottliebsen


commenting on the 200809 JB HI-FI financials said; It is
not the rise in sales and profits that is important, but rather the
lowering of balance sheet risk. There are basically two ways
this can be achieved. Firstly reduce liabilities (or debt) and/
or increase assets such as cash reserves. JB HI-FI has taken a
gamble in that it had reasonably high borrowings, huge lease
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