To improve efficiency and compete with Amazon.
Following its downgrade of long term earnings forecasts for JB H-Fi and Harvey Norman, Citigroup expects the electronics industry to consolidate further. The firm’s prediction is driven by:
- Lower store growth: A slow-down in store roll out over the first five years post Amazon launch, which precedes a substantial reduction in store footprint over the following five years.
- Lower sales density: Sales per square metre declines by 7% to 11% peak to trough as ASPs decline and Amazon takes share.
- Operating deleverage: CODB per square metre is being reduced by 3% to 5% peak to trough, more than offsetting natural cost inflation.
“We expect the electronics industry to likely consolidate further, as retailers rationalise store footprints from the current over-stored position. We expect JB Hi-Fi to become more efficient, likely closing one of their two Melbourne head offices and upgrade their synergy targets to $50 million per annum,” Citigroup said in a statement provided to Appliance Retailer.
“We estimate JB Hi-Fi could generate ~$20 million to $30 million from head count and rental costs from consolidating the two Melbourne head offices and eliminating role duplication.
“The Australian electronics industry is substantially over-stored versus the UK and US, with almost twice as many stores per million people. As a result, we do not consider store density to be a buffer in the Australian market,” the statement said.
JB Hi-Fi was contacted for comment but failed to reply prior to the publishing deadline for this article.