How Smart plays sustained JB Hi-Fi

Nearly four years ago, when Richard Uechtritz suddenly retired as JB Hi-Fi’s chief executive, the market was momentarily shocked and the group‘s shares were sold down sharply. Today’s announcement that Uechtritz’s successor, Terry Smart, will retire later this year was also not foreshadowed, but appears to have been digested more easily by investors.

Both Uechtritz and Smart were former Kodak executives who joined JB Hi-Fi to lead the private equity buy-out of the group in 2000. With Smart as chief operating officer, the duo oversaw the initial public offering of the group in 2003.

The initial reservations the market had about Smart were quickly dispelled. It became obvious that the succession had been executed seamlessly and without disruption to a model that has demonstrated tremendous resilience, despite the segment of retailing in which JB Hi-Fi operates.

As Smart’s chairman said today, during his period as CEO the group’s sales have risen from $2.7 billion to a forecast $3.5bn this year.

Earnings have held up in a very difficult environment for retailers generally but particularly for the electronics, technology and entertainment categories. JB Hi-Fi today reaffirmed guidance of a sales increase of between 6-8 per cent this year and a profit of between $126m and $129m. In 2010-11 the group earned $109.7m.

Smart’s big achievement was to get JB Hi-Fi through the enormously disruptive 2012 year with its sales base intact and its margins maintained.

That was the period when Woolworths was restructuring the Dick Smith chain ahead of its sale and when other electronics retailers were failing and generating intense competitive pressures.

Smart held his nerve. He defended his sales base, kept expanding his store network and focused on the detail of his business rather than changing the core operating model in response to the then-hostile conditions.

He also took the JB Hi-Fi brand and model into a new sector -- the home appliance market -- where it will have 22 JB Hi-Fi Home stores operating by the end of the financial year. The new stores are growing their sales at more than 12 per cent and the group’s early success suggests that the brand extension is being well-executed.

JB Hi-Fi’s digital content delivery platform and its more conventional online presence have also been gaining momentum.

Smart will hand over the CEO role in August to another initial successor. JB Hi-Fi’s chief financial officer for more than a decade, Richard Murray, will take over.

For JB Hi-Fi, internal succession is probably more important than it is for many other groups. This is because of the uniqueness of its model and the complexity of operating in a sector that is at the pointy end of incursions by online retailers, new delivery technologies and characterised by continual price deflation.

Under Uechtritz and then Smart, JB Hi-Fi has remained focused on being a discount operator with an ultra-low cost base while maintaining its unique, slightly edgy ‘brand personality’ and willingness to adapt to changes in the market.

As Smart’s tenure demonstrated, it is easier for someone steeped in the model, culture and strategy to take over the leadership of the business than someone brought in from outside. That may help explain why the market absorbed the news of Smart’s planned departure somewhat more calmly than it did his original appointment.