Harvey Norman is set to replace branded AV products with house branded products sourced from Asia after the mass retailer moved to improve their profitability in the consumer electronics market.
Several months ago Harvey Norman called a tender for the supply of house branded products among those who tendered for the service was Brisbane based Crest while one Sydney supplier chose not to tender believing that the concept had a short term future.
The winner of the contract was a Sydney based audio distributor whose branded products are sold across several Australian retailers.
Yesterday Dick Smith who sources thousands of house branded products via their Hong Kong based office announced a 25.3% gross margin with much of their margin success attributed to the Companies extensive range of DSE branded products.
In some cases DSE house branded products are more expensive than similar branded products.
According to Harvey Norman sources the Company is looking to replace branded products with a house branded product especially in the bottom end AV cable equipment market and CE attach market.
According to several vendors whose products face competition from the Harvey Norman house brand products the concept has a limited future this they claim is borne out by the move by several US retailers who after adopting a house brand strategy are now moving back to selling branded products.
Three years ago Best Buy in the USA moved to rapidly expand its private-label electronics business in a gamble to gain a key competitive advantage over rivals.
At the time Best Buy believed it could lift profitability by selling a house branded product over a similar branded product.
Initially sales of Best Buy private-label electronics soared 40% during the first two years, then the trend started to decline with the Company now moving to expand their branded products due to demand from consumers who want a branded product over a house brand product which research showed consumers believed was being manufactured “on the cheap”.
A senior executive at one vendor said “I doubt whether Harvey Norman are going to sell their house branded products significantly less than the branded products despite the fact that it will cost them significantly less. What this is, is an exercise in replacing declining profits”.
Neither Harvey Norman, or their house brand partner were available to comment.