COMMENT: Why are consumer electronics, games and IT gear so expensive in Australia? It’s because retailers like Harvey Norman have been screwing manufacturers for years. Now the big retailer is trying to deflect blame onto other retailers.
Earlier this week the head Harvey Norman’s PC and console gaming division, Ben McIntosh, came out and criticised Australian retailers for creating a “false economy” in gaming, by giving consumers an unfair deal on prices.
His comments came three weeks after Harvey Norman rolled out a direct import gaming site that is now selling games at similar prices to what overseas consumers pay.
What Harvey Norman is not telling you is that gaming makes up a very small proportion of their consumer electronics offering and that their real profits come from sound, vision, computing, accessories and other consumer electronics products.
When a consumer electronics or IT manufacturer walks into Harvey Norman to do business the chances are that they are going to be asked for a profit of between 40 & 50%, they also ask for additional margins if a product is successful.
On top of this the retailer then demands that the manufacturer pays for Harvey Norman advertising in catalogues, on TV and radio or via sponsorship deals.
The manufacture also has to take responsibility for warranty support and the return of goods as well as any breakages. On top of this if the product does not sell Harvey Norman expects the manufacturer to take the stock back. They also expect favourable credit terms.
Who pays for this? You do because all of these costs are added to the price of a product before it goes on sale in Australia which is why Gerry Harvey is a billionaire and many goods are up to 50% more expensive in Australia than overseas.
In many cases manufacturers are powerless when it comes to cutting the price of goods because of the demands that retailers like Harvey Norman are putting on them.
In the USA last week Brian Dunn, the CEO of Best Buy, told ChannelNews that his stores operate on an average profit margin of 24% or less which is significantly lower than what Harvey Norman demands of vendors.
In an interview earlier this week Ben McIntosh, the head of Harvey Norman’s computers division, said the gaming market in Australia is overpriced because it had failed to adjust to global pricing.
Ben, how about talking about products like receivers, home theatre kits, or products such as the new range of Ultrabooks that are almost double the price in Harvey Norman stores than what consumers in the USA are paying for instead of singling out gaming?
McIntosh went on to say “I believe that gaming in Australia is held up because of the trade-in price and the trade-in market,” said McIntosh. “The retailers that are involved in trade-ins have an active interest to try and keep the price of gaming so high so there’s a value in the trade-in market, because most of them make a lot more profit in the trade-in than they do with new games.
McIntosh claims that greater buying power allows retailers to bring lower prices to consumers, but this begs the question as to why Harvey Norman has not been able to slash the price of goods in the past when they’ve been given exclusive access to products or when they have gone direct to manufacturers in Asia, cutting out a distributor or middle man.
The answer is because Harvey Norman is price gouging in an effort to prop up a struggling retail operation, where senior management who own shares are more interested in pushing up the share price than passing on discounts.
McIntosh claims that he supports the idea of direct importing of games, because it allows the consumer to access product at a more globally-standardised price.
He went on to claim that customers are much better off when Harvey Norman is direct importing and that’s why the Company is direct importing games.
“My ultimate goal for gaming is that Australian suppliers sell to the consumer at the global pricing”.
He went on to say “I’ll stop direct importing gaming when the Australian suppliers react to global pricing and the Australian consumer gets a good deal.”
His comments are pure hypocrisy because Harvey Norman has been in a position to direct import goods for years but have failed to do so. If Harvey Norman is so keen to reduce costs why don’t they start direct importing digital cameras similar to what JB Hi Fi is doing or bring in flash memory, both are categories where Harvey Norman pile on the margins selling products that are 50% more expensive than the same products overseas.
The issue is more about Harvey Norman practises and their inability to run a low cost operation, similar to what JB Hi Fi is doing.
Harvey Norman is not cheap; take the Sony 7.2 Muteki 3D Home Theatre System, at Harvey Norman. The system is selling for $1,299, while at JB Hi Fi the same system is $929 a difference of $377. The Marantz NR1602 Slimline Network 3D HD 7.1 Home Theatre AV Receiver is $949 at Harvey Norman Vs $649 for the same device from Amazon online.
Research shows that consumers in Australia will pay an additional margin of around 20 to 25% to shop either online or in an Australian store but they will not be ripped off which is why Harvey Norman is losing market share to the likes of JB Hi Fi and overseas web sites.