Recent rumours linking the world’s largest consumer electronics retailer Best Buy with the potential acquisition of Australian retailer The Good Guys have been met with amazement in many quarters. Why would a retailer that is in the process of expanding in four relatively new international markets want to enter one of the most competitive retail markets in the world?
If the recent results of two of Australia’s retailers are anything to go by, consumer spending in the consumer electronics category is as strong as ever.
Harvey Norman, the country’s largest specialist, announced that company sales for the six-months to December 31 rose 4% to Aus$3.27 bn (£1.8bn) against the previous year. In the same period, the country’s second largest specialist JB Hi-Fi reported a staggering 23% increase in sales to Aus$1.55bn (£860m), with comparable sales up 10.2% in Australia.
One of the underlying factors driving growth is the Australian Household Stimulus Package. Launched in February 2009, the scheme was designed to provide widespread assistance to low and middle-income households. Benefits include a total provision of Aus$1.5bn (£833m) to help Australians buy their first homes.
The benefits of a stable housing market for consumer electronics retailers do not need to be spelt out, but for the scheme to work the country still needed a positive consumer. Happily, factors such as a strong export industry and low unemployment, which has remained at 5.5% compared with the UK’s 7.8%, have underpinned a buoyant consumer who has shown no signs of curbing their spending.
Despite all these attractions there is still the issue of some very established players in the market, as well as Harvey Norman and JB Hi-Fi, the country’s largest retailer Woolworths owns the chains
Dick Smiths and Tandy, with a combined store network of nearly 400. The Good Guys has already reportedly been a target of both Woolworths and JB Hi-Fi, but the Australian competition commission would be hard pressed to allow a deal between any of these.
With the exception of Aldi there are very few successful international retailers in the Australian market, but clear synergies could be drawn between The Good Guys and Best Buy.
Both retailers operate large-footprint stores and both are renowned for their service-oriented approach. While on the face of it an acquisition seems far fetched, purchasing a top five player in a buoyant market wouldn’t be the craziest move.
Source: Retail Week
