Following its downgrade of long term earnings forecasts for JB Hi-Fi and Harvey Norman, Citigroup expects the electronics industry to consolidate further.
The firm’s prediction is driven by:
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- Lower store growth: A slow-down in store roll out over the first five years post Amazon launch, which precedes a substantial reduction in store footprint over the following five years.
- Lower sales density: Sales per square metre declines by 7 per cent to 11 per cent peak to trough as ASPs decline and Amazon takes share.
- Operating deleverage: CODB per square metre is being reduced by 3 per cent to 5 per cent peak to trough, more than offsetting natural cost inflation.
“We expect the electronics industry to likely consolidate further, as retailers rationalise store footprints from the current over-stored position,” Citigroup said in a statement provided to Retailbiz sister publication Appliance Retailer.
“We expect JB Hi-Fi to become more efficient, likely closing one of their two Melbourne head offices and upgrade their synergy targets to $50 million per annum.
“We estimate JB Hi-Fi could generate ~$20 million to $30 million from head count and rental costs from consolidating the two Melbourne head offices and eliminating role duplication.
“The Australian electronics industry is substantially over-stored versus the UK and US, with almost twice as many stores per million people. As a result, we do not consider store density to be a buffer in the Australian market,” the statement said.
JB Hi-Fi was contacted for comment but failed to reply prior to the publishing deadline for this article.
This story originally appeared on Appliance Retailer.
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