COMMENT: Gerry Harvey was a great door to door salesman, who sold vacuum cleaners to people who didn’t even know they needed a vacuum cleaner, and when the going got tough he introduced interest free selling to Australia.He then opened a store up the Parramatta Road in Sydney and after the success of his first store came hundreds of others, he bought up Joyce Mayne, Clive Peeters and Rick Hart stores, then along came the Internet and all of a sudden the low cost ring of Harvey Norman stores had a hollow sound, prices were not the cheapest on the block and walking into a Harvey Norman did not leave consumers with the same warm feeling that they got walking into an IKEA furniture store or a JB Hi Fi store.
Stores like The Good Guys and JB Hi Fi appeared on the block often right next to a Harvey Norman store, they stripped business away by deliver a similar product range at cheaper prices, they also realised that consumers today want service when they visit a store.
Today Harvey Norman is in trouble and whichever way you look at their business model there are holes so big that one has to seriously question whether they will be gobbled up by a VC fund interested more in splitting out the property assets from the retail stores.
The first big problem is the Harvey Norman franchise model, on one side is Gerry Harvey and his 94 stores and on the other side are the 153 franchised stores run by managers who don’t necessarily carry the same stock as the Harvey Norman owned stores and more importantly don’t appear to operate the same way as the Company owned stores, some get the new world order for retail while other are operating in yesterdays world where “stack it high sell it low” still prevails as their main modus operandi.
Marketing is dysfunctional and the brand is under siege. On one hand you have a grumpy old man in Chairman Gerry Harvey who wants the Federal Government to bring in a big new consumer tax for people who buy products from overseas web sites, while on the other hand there is no brand value associated with Harvey Norman that motivates today’s young upwardly mobile consumers to visit a Harvey Norman store.
Now Harvey Norman is looking to close several of his stores including several former Rick Hart stores in WA.
This week Gerry Harvey said of his West Australian stores “It’s just a simple case if the store loses too much money there’s no point.”
In 2011 the company announced that it would close or rebrand several of the Clive Peeters and Rick Hart stores.
Some analysts are now speculating that Gerry Harvey may quit retail all together or take full control of several franchised stores while letting go of others.
Speaking about the acquisition of Clive Peeters and Rick Hart stores, Harvey told The West Australian this week, “We should have never have taken over that business. In every state it’s been proven to be the wrong decision.”
Across the board sales at Harvey Norman stores are down 7 per cent, chief financial officer Chris Mentis said that profits will fall close to $150 million compared to last year.
Profits ending 30 June 2012 fell to $227.6 million compared to $373.9 million for the year ended 30 June 2011, a reduction of 39.1 per cent.
The big question for financial and retail analysts is whether Harvey Norman is a retailer or a property operator, their total investment in property is $2.1 billion which is almost equal to shareholders’ funds.
During the past 24 hours we have spoken to several Harvey Norman franchisees and all claim that sales have slumped and that they are worried that they will not make their bonuses an issue which management at Harvey Norman are concerned about as several could well quit working with Harvey Norman.
When a consumer walks into an IKEA or JB Hi Fi store they instantly engage with a brand that has personality for the simple reason that these two retailers stick to selling what they are good at.
On the other Gerry Harvey is trying to be the Swiss Army knife of retailing by selling a multitude of products from furniture to kitchen gear to technology and consumer electronics. One minute he is in the lighting business and the top end furniture business with his Space stores, next minute he is opening deal a day online stores in an effort to compete online.
Yesterday he announced that he is moving away from IT and consumer electronics a move that could affect his floor traffic and could well impact on his plan to sell more furniture and appliances.
Stephen Bartholomeusz at Business Spectator was the first to begin a new criteria for evaluating chief executives – do they ‘get it’, with the ‘it’ being the internet. In the classification process he declared that Harvey Norman’s Gerry Harvey does NOT ‘get IT.
Readers responded making it clear that they agreed with Bartholomeusz in declaring that Gerry does not get it. One reader offered the classification ‘Harveynormanosaurus’.
If Gerry Harvey and Katie Page were really smart they would throw in the towel now and sell or hand over the reins to a younger management team who have the experience to carve the business up, relaunch the brand while jettisoning the old franchise model which is never going to work in today’s retail market where online information and brand values are critical.
Harvey Norman needs to stand for something and even Gerry Harvey is struggling to work out what that is today.
