Analysis by Patrick Avenell

Although JB Hi-Fi claims it has the lowest cost of doing business (CODB) amongst comparable listed retailers, the first half of the 2011 financial year saw its CODB rise for the first time in at least seven years.

For the six months to 31 December 2012, JB’s cost of doing business was 13.6 per cent, an increase of 37 basis points from the same period in 2011. From the first half year of FY2006 through until now, JB has continually reduced its cost of doing business, with the 2006 figure of 15.5 per cent improved upon thus: 15, 14.4, 13.6, 13.2 and 13.2.

This rise in CODB is even more pronounced in JB’s Australian business (where 152 of JB’s 165 stores are located), with a 50 basis point increase reported today to the Australian Securities Exchange.

Whilst this figure is still low, the low CODB business model is one of the cornerstones of the JB Hi-Fi business model. With gross margin suffering a dip of 30 basis points to 21.2 per cent, JB Hi-Fi’s profit is now being squeezed at both ends.

Click here to sign up for our FREE daily newsletter
Follow Current.com.au on Twitter

Whilst criticised within the industry for expanding the grey market, JB’s online and multichannel offerings are extremely healthy, growing 87.7 per cent on the previous corresponding period. During this time, JB launched its Direct Import imaging microsite and a Factory Scoop daily deals style offer.

JB reports that, on average, its website has 957,000 visits per week, with that figure jumping to 1.4 million during the busy Christmas period. Despite these impressive figures, online sales only accounted for $25.7 million, or 1.4 per cent of total sales. Current.com.au understands that JB Hi-Fi’s online conversion rate (total visits divided by sales) is one of the lowest in the electronics industry.

What this high volume is good for, however, is promoting new products, such as JB NOW, the music streaming service originally released in beta in December 2011. JB reports that the promotion of NOW will ramp up upon the launch of the mobile apps sometime within the next four weeks.

The ability to market JB NOW directly to consumers in store, as well as selling gift cards and packaged bundles, is a major advantage for the retailer compared with the myriad other services currently available.

The catalogue will have to grow however, as JB NOW only has 5 million songs currently available, compared to Rdio, which claims to have 12 million.

Hidden away in JB’s report to shareholders was this nugget: “[JB Hi-Fi’s] entry into the musical instruments category will provide further growth opportunities”. JB is currently selling Casio and Yamaha keyboard, ranging from $77 to $895. It will be interesting to see if range is expanded to include guitars, drums, flutes, glockenspiels and French horns.

Across other categories, JB is positive about computers (Ultrabooks to encourage replacement market), cameras (better stock levels once Thai production returns to antediluvian levels), telecommunications (with 4G becoming more mainstream through 2012) and gaming (PS Vita launching later this month).