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After recent falls, is the JB Hi-Fi share price a bargain buy?

The JB Hi-Fi Limited (ASX: JBH) share price was a top performer on the ASX last year, delivering an impressive 70% gain for shareholders. So, with JB Hi-Fi shares down 15% in the last 2 weeks, is now the time to buy this ASX retailer?

How JB Hi-Fi has kept ahead of the competition

While other bricks and mortar retailers such as Myer Holdings Ltd (ASX: MYR) and Reject Shop Ltd (ASX: TRS) continue to struggle, JB Hi-Fi has managed to continue to perform very solidly.

In its recent financials for 1H20, JB Hi-Fi delivered total sales growth of 3.9% during the half, including an 18.3% jump in Australian online sales. This was on the back of earnings growth of 6.5% and earnings per share (EPS) growth of 8.9%. The Aussie retailer also increased its interim dividend by 8.8% to 99 cents due to the strength of these results.

I think the secret to JB Hi-Fi’s success is that it is highly skilled at what it does and has excellent product selection. The company has cleverly diversified into TVs, tech accessories, mobile phones, computers, appliances and even white goods such as fridges and washing machines.

The retailer also maintains a team of highly trained and tech-savvy staff, and positions its stores in prime locations to maximise foot traffic.

What’s more, JB Hi-Fi cleverly manages to consistently maintain the sweet spot in product pricing. This has been achieved by offering customers very competitively priced deals without going so far as to erode profit margins.

Further, JB Hi-Fi has astutely evolved its strategy to move away from CDs and DVDs as a core part of its business. CDs have been superseded by online music streaming services such as Spotify, Apple Music and Amazon Music; while DVDs are being replaced by the likes of Netflix, Stan and Apple TV.

Threat from online retailers is being overplayed

There is no doubt that online retail providers such as Amazon.com and Kogan.com Ltd (ASX: KGN) do pose a competitive threat to bricks and mortar retailers such as JB Hi-Fi. However, I don’t think this threat is as big as many industry commentators are making it out to be.

While online shopping is growing, people enjoy the in-store experience and the cost of transporting bulky items such as TVs, sound systems and white goods doesn’t translate very well to the online shopping model.

While Kogan is one of the few online retailers who distribute these types of bulky products in Australia via an online-only retail model, its range of electronic goods is not as comprehensive as JB Hi-Fi. What’s more, the range is very much aimed at the cheaper, budget end of the market.

In addition, I can’t see Amazon being a player in this space apart from smaller, less bulky items. And, once you factor in shipping costs, it doesn’t always turn out to be cheaper online. Sometimes, it can be even more expensive.

Foolish takeaway

I think that JB Hi-Fi remains one of the most successful retailers in a very challenging retail market. So, the recent share price pullback makes an investment in JB Hi-Fi appear a bit more appealing right now.

In saying that, I still think JB Hi-Fi shares look a bit pricey considering a more than 50% rise over the last 12 months.

Where to invest $1,000 right now

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Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Phil Harpur owns shares of Kogan.com ltd. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Amazon. The Motley Fool Australia has recommended Amazon and Kogan.com ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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