JB Hi-Fi’s chief executive, Terry Smart, has rejected the idea that Apple’s rapidly expanding chain of retail stores will hurt his sales.
His comments come as fresh research from Citi shows that Apple’s wealthy customers are increasingly shopping at the tech giant’s flagship stores, shifting profits away from retailers and towards suppliers.
Apple is set to launch its highly anticipated iPhone 5 in San Francisco tomorrow. It has opened two stores in Perth and Canberra this month alone.
Citi’s analysis shows that while sales in retailers such as Harvey Norman, JB Hi-Fi and Dick Smith Electronics had fallen slightly over the past three years, Apple had increased its sales by $3.6 billion over the same period.
“Apple generates sales of more than $35 million per store,” the report says. “This figure is in stark contrast to Dick Smith, which has sales per store of $3-$5 million.”
Citi senior analyst Craig Woolford said the shift could help explain falling profits at Harvey Norman, Dick Smith Electronics and JB Hi-Fi. He said the impact could potentially be worse for JB Hi-Fi, where Citi said 20 per cent of sales are Apple products.
“JB Hi-Fi for a long time has been effective at adapting to consumer trends and has consistently moved,” he said. “As DVDs and CDs became a smaller share of its sales it moved towards TVs and computers, and at the moment, it’s Apple products.
“The real challenge for JB Hi-Fi and any retailer is there’s very little margin on the Apple products for the retailers so you’re reliant on other product sales or the foot traffic they generate.”
As Apple opens more stores in direct competition with retailers, Mr Woolford said the result could be declining sales per store for traditional chains. Rival gadget makers Samsung and Sony have opened their own retail stores.
It’s a pattern that has previously affected Apple resellers such as Next Byte, which was once the largest specialist retailer of Apple products.
The chain was purchased by Vita Group in 2007 and had 23 stores nationwide a year later. It has since shrunk to 18 locations and was this year forced to record a non-cash impairment charge of $15 million to reflect lower earnings expectations.
“The decline in Next Byte revenues, down 21 per cent on the prior year, reflected store closures . . . and softer like-for-like revenues in older format stores,” Vita Group said in its annual report.
“The strategy for Next Byte involves working closely with Apple to roll out new format stores in locations that are not in close proximity to Apple-owned stores.”
But Mr Smart insisted the rise of Apple and its growing retail footprint was a positive and not a negative for JB Hi-Fi.
“It’s not a case of taking market share from retailers because the whole Apple ecosystem and sales growth is significant,” he said. “There’s good growth not only for Apple stores but also retailers that support Apple.
“Apple are expanding their outlets but the sheer reach that we have does ensure that we can be servicing a lot of customers who don’t have access to the Apple stores.”
Mr Smart said he had never spoken to Apple about its retail plans and acknowledged some customers would choose to buy from the source rather than his own shops. Apple refused to comment.
“I’m sure Apple will take a little bit of cream off the top but I don’t think it’s a significant negative to the business,” he said.
“The [electronics retail] market will continue to consolidate, there’s not doubt about that, but what people want is low prices and convenience and that’s something that JB Hi-Fi can offer.”
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