COMMENT: Poor Sales, Lost Profits Now The Internet Gets The Chop At Harvey Norman

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COMMENT: Last week Harvey Norman management was demanding that we pull down a story that revealed 24 Harvey Norman electrical store franchisees were set to be moved into new jobs. They also demanded that we hand over confidential emails sent to ChannelNews.

An in-house Harvey Norman lawyer claimed that the movement of franchisees was not unprecedented as we claimed in our story and that the story was damaging and that we were engaging in misleading conduct.

The story which appeared on ChannelNews was based on a leaked email which Harvey Norman demanded we hand over to them. We didn’t and we won’t ever hand over to Harvey Norman or any Court confidential emails that disclose the name or contact details of any person who has given us information on the basis that we will not disclose their identity.

Since that story appeared we have received new emails from current and former staff including one from a long standing employee of Harvey Norman whose name we will not disclose.

This person who appears to have an excellent understanding of the way Harvey Norman operates said the recent movement of 24 franchisees is a routine operation. “Think of it as performance management. If you aren’t performing well in a store, they’ll move you to one that will make you less money, and if you are performing well, they’ll move you to a store that’ll make you more money” they wrote in their email.

The long time employee went on to say that “The company can do this because of the structure of the Franchising agreements. Please keep in mind that 24 electrical Franchisees represent about 10% of the Franchisee population. Most franchisees don’t keep a store for more than 4 years, so 25% in a given year is to be expected”.

Last week in another story, which revealed Harvey Norman store sales were down 10.2% and profit before tax earnings were down 17.69%, we pointed out consumers were venting their anger about the company with more than 87 people commenting in a 12 hour period on a Fairfax Media comment page.

Many of the comments related to the Internet comments of Chairman Gerry Harvey and poor service at Harvey Norman stores.

The SMH story indicated that it is now becoming apparent  a new strategy is required at Harvey Norman “to stop the rot”.

In an email to ChannelNews after this story appeared a person who has spent more than 10 years working at Harvey Norman in a senior role wrote  “I see customers venting their anger every day about the poor service” (it’s crap, let’s face it) they went on to say that as for “faulty products (it happens to everyone)”.

In our story about franchisees we highlighted how several distributors and vendors had contacted ChannelNews to complain about the way in which Harvey Norman engages with suppliers.

Harvey Norman claims that we are publishing information maliciously.

The facts are that since we first launched ChannelNews back in 2003, suppliers to Harvey Norman have complained about the demands the national retailer makes of them.

A former senior executive of the company told ChannelNews this week “I don’t understand how suppliers can still work with them. Harvey Norman still doesn’t engage in Electronic trading with suppliers”.

They went on to claim that Harvey Norman has brutal trading terms with many suppliers and that they exploit these terms to their utmost, “suppliers have come to expect this, and do factor this into their next negotiations” the former employee said.

They said that the direct-to-store ordering and logistical model with no forecasting creates a high cost of doing business, as suppliers have to anticipate the expected demand from Harvey Norman, and often over stock accordingly.

4Square Media believe that the Harvey Norman business model is broken and that the company is struggling to turn their business model around.

 


Contributing to their problems is poor in-store service which Chairman Gerry Harvey even highlighted last year when he went on national television.

Also contributing to their poor profit results is their lack of internal systems that allow decisions to be made quickly and fairly in the best interest of both Harvey Norman and suppliers.

In 2008, the company announced it has commenced development of a global merchandise management system to support its core retail brands.

Code named Reload, the $100M investment was suppose to support the existing operating systems by providing one centralised overview of all merchandising-related information for its enterprises.

Key benefits of the system were cost savings as well as the streamlining of the company’s operations, including procurement, distribution, real-time information reporting and promotions management.

Our understanding is that this system is now bogged down, and that suppliers are still forced to deal directly with franchisees.

We also believe the budget for the SAP based project is under pressure due problems associated with implementation and the distribution of costs associated with the project.

If and when this system is ever implemented, it should deliver better accountability to both Harvey Norman and their suppliers.

Harvey Norman does have a “tough” retail engagement model. Back in 1998, when the Company had 60% of the PC market and the likes of Tony Gattari ran their PC business, Harvey Norman threw Compaq out of their stores overnight for daring to open eight specialist small-medium business stores. At the time Compaq was the #1 PC supplier.

In that same year Gerry Harvey told me that the Internet was a “fad” and that it would not take off. He told me that bricks and mortar retailing was the future and that consumers “would not buy online”. 

Now in 2012 he is struggling to make a go of online with the Company claiming at the weekend that they are drastically scaling back plans to conduct 5 per cent of its trade online, only months after launching a brand new website.

Chief executive Gerry Harvey said the company’s recent online trading figures had been unimpressive.

”We’re happy with our presence, we’re happy with our site; we’re not happy with our sales,” Mr Harvey said. ”When we set up the online transactional site a couple of months back, we saw it being about 5 per cent of our turnover, but at the moment it’s not going up at all, it’s still sitting at about 0.5 of 1 per cent.”

Mr Harvey said the company was revising down its original target of 5 per cent of trade online within two years to between 1 and 2 per cent.

 

”We’ve all overestimated it by an enormous amount,” he said.

Back in 2010, the company said Reload was all go and that they had completed the training of IT staff that are due to work on the first phase of Project Reload.

Chief operating officer John Slack-Smith said at the time online retail would not become a priority for the company until Project Reload was completed.

“Today we have next to nothing in the way of revenues that we drive from online technologies. Over the course of the next three years, on the basis that change will never occur as quickly as people will have you believe, we won’t see much change in regard to that,” Slack-Smith said.

Slack-Smith said in 210 the internet means that consumers are more informed than ever before, and this was a driving factor for Harvey Norman to invest in bettering systems and processes.

The fact is that current management of Harvey Norman is spending so much time putting out fires that they have lost focus of where retail is actually going and if they believe that online is not going to grow to be a major part of their business, they are plain wrong.

20.6 million of Australia’s 21.9 million people – or 94 percent of the population – spent time online in January, the Nielsen Company reported in its latest Nielsen Online Ratings. And surprisingly to some, the core Harvey Norman target audience, which are people over 35, were in the majority.

Average PC time per person was 49 hours during January, Nielsen estimates. But it wasn’t so much the kids who were flocking to the Web: Australia’s online population is now skewed heavily toward the over-35s. “The Internet is now dominated by higher-income, more established consumers,” Nielsen says.

The over-35s comprised 59 percent of the online population.

I reiterate that what is needed at Harvey Norman is a brand new management team, one that can take an established brand with bucket loads of equity and turn it around.

All that Gerry Harvey has to do is bite the bullet, and trust other people to run his business. He also has to learn when to shut up and when to comment because some of his comments have wiped millions off the value of his business. They have also alienated thousands of consumers, many who claim that they will never shop in his stores again.   

A short while ago we asked Harvey Norman to comment on about issues impacting their operation. If and when they reply we will bring you their comments.

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