JB Hi-Fi has recently acquired The Good Guys for $870 million. Was it worth the high price and what can pharmacy operators learn from such a deal?
By Bruce Engeman.
The generous amount JB Hi-Fi has paid to acquire The Good Guys reflects the strong growth prospects and dominant position of The Good Guys in the $4.6 billion home appliances market.
Over the years, The Good Guys has performed extremely well, outlasting many of its rivals, such as Clive Peeters, Rick Hart, Brashs, Betta Electrical, Retravision and, more recently, Dick Smith.
However, did JB Hi-Fi really need to pay so much?
JB Hi-Fi is an impressive company that has overcome a lot of technological disruptions and issues with the economic growth to produce consistently strong earnings, profits and share-price growth.
The great advantage that JB Hi-Fi creates with this acquisition is that it moves the company from the lounge room (where it has sold music, movies and the things that play music and movies) to the rest of the home (with particular focus on the kitchen, laundry and bathroom). Moving into this growing home-appliance area gives JB Hi-Fi a lot more market power.
With this deal, JB Hi-Fi goes from a market share in home appliances of three per cent to 29 per cent (Harvey Norman’s market share is 24 per cent). JB Hi-Fi’s total market share goes from 19 per cent to 24 per cent (with Harvey Norman at 15 per cent). JB Hi-Fi will create annual savings of $15 million to $20 million over the coming years (less than the $40 million predicted by some analysts).
How the acquisition will work
JB Hi-Fi has indicated that it will continue to maintain two head offices for the two brands with separate CEOs. It will be a challenge to successfully maintain two brands, two cultures and two management teams (with two separate support networks). The history of big companies trying to merge two brands has shown that this concept is rarely adopted permanently, and many financial analysts have failed to understand JB Hi-Fi’s motives in taking such an approach to this acquisition.
However, it is all about the separate, independently strong brands of JB Hi-Fi and The Good Guys and not about converting all The Good Guys’ existing stores to JB Hi-Fi outlets.
This acquisition is really focused on giving JB Hi-Fi the ability to become a leader in the lucrative home appliances market.
Both businesses have very distinctive and different cultures. JB Hi-Fi runs more as an overall corporate team while The Good Guys’ culture involves whoever is running the store owning the store. Making these businesses work together in one direction will be a real challenge, but I believe JB Hi-Fi is up to the task. It has a strong history of delivering results.
JB Hi-Fi, with Richard Murray as CEO, runs one of the best teams in Australian retail. It will have huge growth opportunities with this acquisition and a lot more market power in dealing with the landlords. The deal will ultimately enable it to reduce operating costs with the new ownership structure.
Increased market power means landlords will be forced to give JB Hi-Fi better leasing deals, cutting its occupancy costs – such is the advantage that JB Hi-Fi will gain through adding all these extra stores and the second strong brand of The Good Guys.
Lessons for pharmacy operators
- A pharmacy operator should never underestimate the power of brand. JB Hi-Fi will maintain The Good Guys brand, which is very strong in its own right.
- A pharmacy operator should always be on the lookout for potential growth opportunities. How can you, as a pharmacy operator, grow your business? This acquisition moves JB Hi-Fi from its usual market of the lounge room to the rest of the home, like the kitchen, laundry and bathroom.
- A pharmacy operator that has a number of brands or a number of stores will be able to use this increased market power to its advantage in discussions with landlords.
Thomson J. ‘Challenges ahead to make different business cultures pull together’, The Australian Financial Review 14/9/16.
Durie J. ‘Murray, Ford face a management integration, The Australian, 14/9/16.
Mitchell S. ‘Sales, not synergies, drive JB Hi-Fi acquisition’, The Australian Financial Review, 15/9/16.
Mitchell S. ‘ACCC warning to its retailers in the hunt to snare online rivals’. The Australian Financial Review 29/9/16.
Mitchell S. ‘JB Hi-Fi’s big Good Guys challenge’, The Australian Financial Review, 14/9/16.