By Aimee Chanthadavong
Owner of Radio Rentals, Thorn Group, has announced it will be strategically moving its investment elsewhere after deciding to exit its online retail venture BigBoxBrown.com.au, as a result of “difficult trading conditions”.
John Hughes, Thorn Group managing director, told Retailbiz this is the result of the poor state of the retail market and the move is in the best interest of shareholders.
“It’s more relative to the retail market overall and most particularly the consumer electronic retail market where that has been a lot of starving prices and price deflation. As a result, we have to develop the business in other ways and we need to find the best place focus our efforts,” he said.
“Research that was done suggested the Australian retail market wasn’t going to recover for another one to two years. We believe we have to take a pragmatic approach to what we believe is best for business and ensuring that we can provide the best return for our shareholders versus where we think online retailing is going.”
But BigBoxBrown’s impact on profitability will be minimal, the company said.
This has so far been illustrated by the company’s six month results to 30 September 2010, which recorded net profit after tax of $11 million, 38 per cent above the normalised prior year results of $8 million
According to Thorn Group, the positive result has been underpinned by two primary factors – growth in customer numbers and the strength of its business model.
Customer numbers in the core Radio Rentals/ Rentio business have grown 6.3 per cent, reflecting the strong market position of this business.
“A very low percentage of our customer base has a mortgage so our customers have a greater resilience against the rising interest rates so it won’t stop customers coming to us,” Hughes said.
“The only thing it may do is that people may find themselves cash and credit constrained but may need basic household goods and we are the alternative. So the tough economic conditions may be affecting other retailers but we have some actual opportunity.”
He also said that while retail conditions generally have been soft, the attractiveness of the group’s flexibility has also brought more customers in.
“The rental market has now seen a far better way at offering affordable access to gain product, particularly for those that may have credit defaults in their history. We’ve noticed up to 60 per cent have default listing and we think those people have not been fairly treated. So we give far greater credence then we do on credit histories,” Hughes said.
“We have a greater acceptance of rental in a general sense. For example, our ‘rent, try, buy for $1’ deal has the potential for ownership which means flexible access products.”
From the improving financial performances, Hughes said the company has increased its profit after tax guidance.
“We believe there’s a positive outlook for the full year ending March where were we expect our profit after tax guidance will grow between $21 to $22 million for the full year which will lead to some 28 to 34 per cent on a normalised basis excluding one off tax benefits.”