Finance Consumer The retail powerhouses turning the pandemic into a payday

The retail powerhouses turning the pandemic into a payday

JB Hi Fi and Kogan had a good year.
Retailers JB Hi-Fi and Kogan delivered stellar profits despite the coronavirus lockdowns. Photo: The New Daily
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Locked-down Australians have turned to Kogan and JB Hi-Fi to make their isolation more bearable – driving up their profits up in the process.

In statements posted to the ASX on Monday, both JB Hi-Fi and Kogan unveiled surprisingly healthy annual results, delivering net profits after tax of $332.7 million and $26.8 million respectively.

That marks an increase of 33.2 per cent on JB Hi-Fi’s 2019 profits, and an astounding 55.9 per cent for online retail behemoth Kogan.

JB Hi-Fi chief executive Richard Murray said he was pleased with how the business had performed, and announced bonuses of $1000 for full-time customer-facing staff for their work during the pandemic.

“This is a strong result in the most challenging of times,” he said.

“Importantly, we have provided our customers with the products they required as they spent more time working, learning and seeking entertainment at home.”

Kogan founder Ruslan Kogan made similar remarks, noting the company had continued to serve customers “in the midst of crisis”.

Sales spurred by ‘cocooning’ Australians

The companies’ success was likely driven by the “cocooning effect” the pandemic has had on Australian consumers, according to EY mergers and acquisitions partner Duncan Hogg.

Speaking to The New Daily, Mr Hogg said the money people used to spend on ‘experiences’, such as dining out, going on holiday, or spending a night at a cinema, is being directed towards “making their homes more liveable”.

It’s the same reason that homeware brands like Nick Scali and Breville have seen their profits insulated from the worst of the recession, he said, while noting bed and bath retailer Adairs had enjoyed a near 20 per cent profit jump.

Fortunately for these retailers, the gradual winding down of government support programs like JobKeeper and JobSeeker won’t have a large effect on their business going forward.

“To some extent, [this stimulus] is playing into the result because they mean people still have discretionary income,” he said.

“But there’s a large portion of the population that aren’t on JobKeeper, and they don’t have the capability to travel overseas or have the benefit of those other experiences, so they just spend on themselves at home.”

Sharemarkets respond

Although both businesses posted healthy results, investors reacted differently to each.

JB Hi-Fi shares rallied and closed 4.5 per cent higher than when markets opened, as traders saw the strong results as a promising sign of things to come.

Meanwhile, Kogan’s share price went the other way, losing 6.1 per cent as investors cashed in on the business’ strength by selling their holdings, according to Mr Hogg.

But even after the drop in price, shares in Kogan are still up 291 per cent on the same day last year.

Those gains come despite price gouging accusations and controversial multimillion-dollar bonuses for executives.

More pain for some retailers

JB Hi-Fi and Kogan’s fortunes are the exception to the rule, however.

News of their incredible performance coincided with the collapse of fashion retailer G-Star Raw, which left roughly 200 staff out of a job.

The company was placed in administration in mid-May, but an “extensive marketing program” organised by administrators from EY was unable to find a buyer for the denim business.

“As a consequence, all of the company’s stores have now been closed,” the administrators said in a statement.

“G-Star RAW is a globally recognised brand. The fact that no party was able [to] buy the business reflects the high level on uncertainty regarding the future prospects for the retail sector in Australia.”