JB Hi-Fi Group CEO, Terry Smart has told investors that staff are told to ‘take the deal’ amid increasing competition with a return of on-floor discounting and more above-the-line marketing.
“We have processes around understanding discounting but our direction to our staff is to take the deal. Sometimes it’s skinnier than it should be, but we would rather bank those dollars than let someone else do it – even if the end result is a lower gross margin,” Smart said during the retailer’s first half FY24 results presentation.
“The decision to discount is up to our staff, but it’s driven by how competitive the market may be. If customers come to us after they’ve found a better price at a competitor store, we tell our staff to take the deal.
“Margin is more dictated by competitor activity and above-the-line discounting has been more aggressive. We’re having to match a lot more deals on the floor – compared to during Covid.”
JB Hi-Fi’s gross margin was down 84 basis points to 22.01% for the half, while The Good Guys felt less of an impact with gross margin up 16 basis points to 23.37% due to its sales mix.
“For The Good Guys, category margin has come down as a whole but home appliances are holding up well. Consumer electronics were more challenging in the half and they’re already a lower margin category, which played into the mix and therefore raised the percentage margin,” Smart explained.
“The Good Guys margin was also supported by good results from the services category, including telco services and connections, as well as agency sales – for the likes of Asko, Miele and now Fisher & Paykel (among others). The gross profit we make from those goes into there and we saw an improvement in agency sales.”
Smart has flagged that The Good Guys gross margin may not hold up if growth returns in consumer electronics and tech side of the business, which will ‘naturally’ bring the percentage margin down.
“When you think of The Good Guys, they are known for home appliances. When the market got a bit tougher, we saw the consumer electronics and tech side of the business suffer, so it’s about being relatively stronger in the mix,” he said.
“We’ve seen good growth continue from major appliance categories, particularly refrigeration and laundry, as well as small appliances with floorcare performing particularly strong. This is promotionally driven in a lot of cases but again home appliances dominate the strength of The Good Guys proposition.
“Again, we’ve also seen positive results from telco connections. We don’t expect it to reach the same level as JB because it’s such a powerhouse in telco – but it’s been good and helped support margin in the half.”