JB Hi-Fi is betting we’ll use the internet to control our homes as intelligent products become mainstream.

In many ways it's a miracle that JB Hi-Fi still exists, let alone that it's one of Australia's great retail success stories. The consumer electronics retailer, whose garish yellow and black stores dot shopping centres throughout Australia and New Zealand, is in the retail sector worst affected by the rise of e-commerce: home entertainment.

Who buys CDs instead of buying and downloading online or streaming them? DVDs, software and games are going the same way. JB Hi-Fi's hardware sales make up a bigger proportion of its business, yet they too are vulnerable to the internet.

Despite the fast changing market, the company excels at jumping on the next big thing in technology and getting the march on its competitors, whether digital cameras, computer games or, in the lead-up to last Christmas, with the ridiculous selfie stick.

Chief executive Richard Murray is now betting the future of JB Hi-Fi on the internet-connected home being the next big thing in consumer electronics.

Advertisement

The 37-year old father of four is hoping homeowners will start using their phones to turn on the air conditioning half an hour before they get home; that they'll want their fridges to remind them to buy milk; and their blinds will automatically open and the radio turn on when the sun rises.

Challenging time for retailers
The products are moving out of the sphere of the hobbyists and the electronics geeks, and into the mainstream. Germany's Bosch and South Korea's Samsung have launched rival platforms to let homeowners control its own and other companies' smart appliances, and other manufacturers will soon be jumping into the space.

JB Hi-Fi is ready for the revolution, and expects to earn about a billion dollars a year from the connected home market in the coming years. It will roll out the products in its new HOME store format, which has a focus on the large home appliance market.

Murray has been chief executive for less than a year, but he is already a company veteran - he joined the company in 2003 and was appointed chief financial officer at age 26.

Coinciding with his 10-year term as CFO has been remarkable growth for the company, with sales increasing eightfold to $3.5 billion in 2014.

With the share price sitting above $17, the mums and dads who snapped up shares when the company listed in 2003 have seen their investment increase by more than 10 times. But sales and earnings growth have slowed in recent years and there are concerns that JB Hi-Fi's best days may have passed.

A nation of whingers?
Murray is taking on the challenge at a difficult time for retailers in Australia. The heady days of the mining boom when Australians seemed to have an insatiable hunger for big screen TVs and were happy to rack up debt on consumer purchases are a distant memory. The fall in the Australian dollar will make imported goods more expensive in the coming year and consumer confidence - and hence retail sales - hasn't really recovered since the global financial crisis.

(Even with the mining boom behind us, things aren't too bad in Australia. House prices have risen strongly, unemployment is low compared with much of Europe and the economy is still growing, albeit slowly. So why Australians are so pessimistic is a bit of a mystery. We're at risk of becoming a nation of whingers.)

JB Hi-Fi was the first of the major retailers to report its December half sales, and while they weren't terrible, they weren't cause for rejoicing. Total sales were up slightly because they opened new stores. Take the new stores out of the equation and sales actually fell a little.

Murray is pointing to the strong 7 per cent like-for-like sales growth in January to predict a better 2015 than last year, but retail analysts aren't so optimistic.

Some are concerned its profit margins will shrink as lucrative software sales disappear and the retail environment gets more difficult. JPMorgan analyst Shaun Cousins said the financial update on the HOME format was "disappointing" and sales hadn't matched the business case.

JB Hi-Fi was founded in 1975 in suburban Melbourne, when music was sold on records. That it's still around and has thrived until now is testament to its extraordinary ability to respond quickly to a quickly changing market.

The company's in a tough spot at the moment, but if anyone can work out a way to survive and thrive as a traditional high street retailer of consumer electronics, it's JB Hi-Fi.

Christopher Niesche is a Sydney-based business journalist He is a former editor of the Business Herald and a former deputy editor of the Australian Financial Review.