The Social Nework Beast Vs Gerry Harvey Who Will Win?

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COMMENT: Consumers today are using social networks to vent their anger about Harvey Norman following this morning’s announcement that sales have slumped 10.2% at their Australian stores and that pre tax earnings are down 17.69% for the period ending December 2011.Earlier today Fairfax Media claimed that a new strategy is required to stop the rot at the big retailer who last week accused ChannelNews of engaging in deceptive and misleading conduct when we reported that the Company was experiencing falling sales and lost profits.

After we exposed a leaked email detailing that 24 senior franchisees were set to be shifted into new jobs this week and that some executives had chosen to resign, Harvey Norman wrote to 4Square Media claiming that this was not an irregular process and that in the past more than 24 franchisees had been told “at the same time” that they were being moved to a new location.

Harvey Norman has chosen not to offer up a spokesperson to comment on our original story that can be found here. (click link)

This was a story that was published along with the comments of senior Harvey Norman staff and suppliers.

4Square Media has chosen not to publish any of the confidential emails that were sent to us as they contain information that we could not verify. 

The sales floor staff and franchisees who contacted 4Square Media in confidence have said that they are now “terrified” of being either caught out or sacked or their supply contacts terminated.

At Fairfax Media today several consumers vented their attitude towards the struggling retailer.

A Victorian customer wrote “Your customers have voted with their feet Gerry, treat us like dirt, and you lose out on your precious sales! Biggest retail mistake I’ve ever seen.”

Another consumer wrote “Gerry Harvey has had an extraordinary career and done pretty darn well for himself out a 20th century business model. His business model is predominantly about bricks and mortar (more correctly concrete panel sheds) being occupied by tenants paying high rents to be part of the Harvey Norman brand. This business…model is well past its use by date.”

There are thousands of internet businesses erupting across Australia and the world, and they are chipping away at old retail paradigms. Anybody who has any doubts about this is in deep, deep trouble.

The bulky goods retail model – especially the Harvey Norman variant – is an endangered species”.

Another NSW consumer wrote “I have to admit that after his attacks on consumers for shopping elsewhere, including overseas, I haven’t set foot in a HN Store since. What’s more, I never will, again.”

The reality is that sales are falling at Harvey Norman but of more concern is the reaction of consumers following a series of comments last year by Gerry Harvey, the Chairman of Harvey Norman.

After slamming the Federal Government for not bringing in a 10% GST charge on goods under $1000 purchased from overseas suppliers, Gerry Harvey then spent hours dressing up in a disguise so that he could expose the “poor service” staff delivered in his stores.

The fact that he engaged in such a farcical publicity stunt raises serious questions about the marketing and communications skills that the Company uses to compete in a digital world where video goes viral in seconds and consumers can openly pass their opinion on social networks.

Following past stunts by Gerry Harvey and the reporting of their latest results shareholders are losing patience with a company whose share price has been on a downward spiral for a number of years.

Fairfax said that the Company’s plunging share price has got to a stage where its market capitalisation of $2 billion is $400 million higher than its investment property portfolio, implying the rest of the business is worth barely $400 million, which is ridiculous.

Last week we reported that the investment community was getting fed up with Harvey Norman and that there were moves afoot to try and break up the Company.

To do this Gerry Harvey has to throw the towel in and sell all, or the majority of his 30% shareholding he has in the Company.

The other option is for Gerry Harvey to go private; this would involve him having to go to the private equity market during a period of dire financial uncertainty in an effort to raise capital or fund the buyback himself.

 

Earlier today executives of the Company came up with the term “omni channel strategy.” It did not impress the analysts.

Harvey Norman described it as a diversified strategy of managing an integrated retail, franchise and property system.

He said that this strategy had enabled it to mitigate some of the negative headwinds and allowed it to build on a strong net asset base to provide for future growth.

“Our balance sheet is robust and unique to that of our competitors,” the company said.

He went on to claim that the company had a property portfolio valued at $2.12 billion which provided strength and stability to its balance sheet.

“Property ownership offers a distinct advantage over our competitors as it provides us with a reliable income stream in an uncertain retail climate,” Mr Harvey said.

What appears to be happening is that the current management of Harvey Norman is under siege and there is a real possibility that they lack the skills to turn the Company around. Harvey Norman is first and foremost a retailer not a property investment Company.

If they want to be seen as a part retailer and part property Company Gerry Harvey should be forced by the investment community to divest of his property entities into a separate operation so that investors get a clearer picture of how his retail operation is performing.

At the end of the day his business has to be measured on a like for like basis.

JB Hi Fi who increased sales 6.2% in the last quarter has quietly been stripping market share away from Harvey Norman.

They were online several years before Harvey Norman and they appear to have staff who are well trained and knowledgeable.

What Harvey Norman has to realise is that consumers today are different beasts than those of the past and they cannot be talked into a product based on the spin of a poorly trained Harvey Norman staff member.

With the explosion of social media and smart devices, customers are becoming incredibly sophisticated, elusive, and empowered.

As a result, the dynamics that govern the relationship between brands and customers is evolving, Fast Company recently wrote:

“I personally don’t believe that Harvey Norman management get this as they still have a stack it high sell it low mentality, their advertising is testimony to this.”

Then there are all the stupid PR mistakes.

To attack online and spit in the face of consumers who are daring to shop online was an utterly stupid mistake because the very social networking that is delivering information about brands and products is the same network that will take a Company and spit out venom when a consumer has had enough, which is what they are doing right now.

What Gerry Harvey has to come to grips with is that the social network beast can either embrace him or destroy him and right now the sentiment is going against, due in part to his own actions.

 

I believe that what Gerry Harvey needs to do is stand up and admit that he does not have the skill set for a modern day retail environment and bring in someone who has the skills to initiate radical change in his business.

Coles Myer went for years delivering poor results, they then brought in an executive who not only turned the Company around but started delivering decent profits.

Gerry Harvey needs to seriously consider this option.

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