By Patrick Avenell

JB Hi-Fi is the best performing listed electronics retailer, but cautious consumer spending and destructive price erosion is testing its ability to maintain growth in a compressed market, according to reports by leading investment banks.

Although rated ‘Buy’ by RBS, director – retail analyst Daniel Broeren said JB Hi-Fi’s business model is now facing its sternest test.

“Price deflation remains the most significant risk to retailer operating models in the next 12-to-24 months,” he said. “Importantly, in the case of electrical products, this process is in an advanced stage, particularly compared to other commoditised categories.

“In the case of JB Hi-Fi, its desirable store format, high productivity and low cost base have allowed it to absorb price deflation and maintain a broad level of profitability.

“We see JBH as a high-quality retailer and ultimately a benefactor of market consolidation.”

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At Macquarie Securities, consumer analyst Rob Blythe reported that JB Hi-Fi status had been upgraded to ‘Outperfom’. This is despite Blythe predicting a tightening of consumers’ purse strings.

“Despite financial analysis indicating consumers can spend, emotional preferences favour out-of-home experiences and savings,” he said. “Following a decade or more of expanding rates of real household consumption growth, there appears to be an aversion to disposable consumption and replacement/upgrade purchase behaviour.”