Homing in on JB’s Success: Farewell to a Smart operator and welcome to Richard the Third

Opinion

The King is Dead! Long live the King! No company in Australia does CEO retirements and coronations quite like JB Hi-Fi. Having seamlessly taken the reins from the brilliant Richard Uechtritz just over four years ago, Terry Smart has called it a day and will soon pass the baton, which I like to imagine being a flat screen TV remote control, to his closest deputy and another Richard, current CFO Richard Murray.

It’s clean, comfortable and reassuring: the sort of transitions that institutional investors love and customers never notice. It is certainly a smoother, more professional and less scandalous transfer than Mark McInnes’ shock resignation that saw Paul Zahra ascend to DJs’ helm, a position he later relinquished and then linquished back when either no suitable replacement was found or, more likely, he’d dispensed with opposing forces on the Board.

Unlike Manchester United, which has seen only turmoil and disarray from having a longstanding leader helping to choose his successor, JB Hi-Fi has made this choosing of chosen ones part of its DNA.

“I have worked very closely with Richard Murray for more than 10 years, taking the company to the position it is in today,” Smart said. “Richard has a great knowledge of the business and I have no doubt JB Hi-Fi will be in a great pair of hands.”

It all sounds eerily similar to when Smart himself was endorsed for the gig by Uechtritz:

“He’s been here as long as I have, we’ve worked together and he knows what makes JB a great company. It’s not as though we’re moving [to] an executive from another industry,” the second-to-last CEO said at the time of his departure in 2010. “It will be more of the same of what’s made JB great over the last 10 years.”

These sorts of pronouncement are made all the more easy by JB’s hard won success. While Young King Tommen this week inherited a Westerosi basketcase and a meddling grandfather, Richard Murray takes over at a time of steady if not spectacular performance.

The publicly listed company closed at $20.64, only shedding 16 cents or 0.77 per cent on the news of Smart’s departure. This is around 33 per cent better than the sub-$15 doldrums of 10 months ago, more than double the $8.20 nadir of 2012 and pretty much exactly the same as when he took over. The downturn in retail has affected all players but none have recovered and prospered as nimbly as JB Hi-Fi.

The third Richard of this tale, chairman Greg Richards, paid tribute to Smart and highlighted a number of his achievements, such as revenue growing from $2.7 billion per year to an expected $3.5 billion this year. There was also mention of Smart’s contribution to JB Hi-Fi’s explosive store growth, from 10 when he joined to 182 stores today. It should come as no surprise that Smart didn’t object to having his resignation announcement bundled with a trading guidance update that showed comparable sales growth for the January to March 2014 quarter was up 3 per cent and raw sales growth was up 5.9 per cent.

It was in this appendix to Smart’s ASX release that his greatest contribution was detailed. During his reign, JB Hi-Fi finally solved its Clive Anthonys conundrum. Rather than own and administer another big box, standalone appliance chain in the mould of Harvey Norman and The Good Guys, but with a terrible brand too closely associated with Clive Peeters, Smart smartly elected to do something different. He tore down the Clive Anthonys shingle, which had little to no brand equity, and replaced it with JB Home; those first two letters carrying so much brand equity that immediately analysts and investors took notice.

According to the official company line, there will be 22 JB Home stores in Australia by the end of FY2014, with a long range goal of 50 stores in two years’ time. These stores will be competing for a sizable chunk of the $4.6 billion home appliance market and rivals should be worried.

JB Hi-Fi stores have a certain look and feel: no staff uniforms, no carpet, a warehouse mood with product piled on top of each other and a seemingly infinite budget for shelf talkers. It looks cheap, but not the bad cheap that infested so many of the older Retravision stores and turned off potential consumers; the good cheap that makes customers feel as though every possible overhead corner has been cut so the prices can be as low as possible. ‘We don’t have carpet so you can save $5 on your iPad’ is essentially JB’s mantra.

And now those small but significant savings are being transferred to coffee machines and vacuum cleaners and freestanding cookers. While industry veterans likes the Winning family and Rick Hart move to the premium end with their magnificently decadent appliance emporiums on either side of the country, and even those famous bastions of parsimony, the Lee family, dip their toes in the less price sensitive waters with its Bing Lee Balgowlah ‘reimagining’, Smart has taken JB Home to the exact opposite end of the spectrum. Name brand appliances sold as cheaply as possibly in outlets designed to closely resemble their existing consumer electronics stores. They might not sell a $60,000 Miele kitchen this way but they will sell a lot of those essential appliances that consumers don’t want to linger too long thinking about: kettles, toasters, irons, hand vacs. “CHEAP, CHEAP, CHEAP, WE WON’T BE BEATEN, JB YOU’VE DONE IT AGAIN!!!” It has a broad, confidently self-aware and unpretentious appeal that really can’t be matched by the tepid ‘Shop with Confidence‘ message currently being spruiked ceaselessly by Harvey Norman. It should come as no surprise that JB Home, unencumbered by fidgety franchisees, wholeheartedly encourages its customers to also shop with confidence online.

Although at the low end of the price market, JB Hi-Fi does have something in common with the aforementioned higher-end examples, Winning Appliances, Kitchen HQ and Bing Lee: they are all members of Narta. While this buying group has had some difficulties handling so many different retail brands, there is a brotherhood inside this association that fosters its members to create and nurture unique sales propositions. Regional attributes (Betta Home Living), family values (Bing Lee), high quality sales and service (E&S Trading) and even good ol’ fashion West Australian parochialism (new Retravision) are exploited successfully, if at times amusingly.

JB Home’s USP is JBness and this is Smart’s greatest achievement. While some rushed to the premium end and others rushed to the middle, JB has managed to invent a low-end appliance retail chain with none of the stigma of the established and dowdy mass market chains, like Target, Big W and Kmart. JB Home embodies good cheap and it will continue to attract the price conscious consumers, while the well-minted will fly to the premium outlets, placing an enormous, hourglass shaped strangle on the middle market.

Do those retailers, like Harvey Norman and The Good Guys, have the ability to avoid this asphyxiation? Let’s hope they too have some smarts in the corner offices.

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