Retail therapist

Gerry Harvey is the face of Australian retailing. The boy from the bush, who dropped out of university when he was 17, started his working life as a door-to-door salesman selling vacuum cleaners.

In 1961, along with friend and business partner Ian Norman, he opened his first retail store — Norman Ross. By 1982, they had built a solid business along Australia’s east coast with 42 stores only to sell it.

With the money they made the pair started Harvey Norman in October 1982 and never looked back.

Today, the Harvey Norman retail chain has outlets and franchises around the world, including New Zealand, Singapore, Malaysia, Slovenia, Ireland and Northern Ireland.

Australia’s retail sector, however, is facing an uncertain future as more and more consumers do their shopping — especially for clothes, computers and electronics — online, where prices are substantially cheaper than those charged by existing bricks and mortar retailers.

Price competition between retailers is hammering margins and an uncertain global economic outlook is seeing consumers spend less as they pay down debt.

These factors have not escaped Gerry Harvey as he contemplates the future of his business.

“It’s really grim,” he says in his Sydney suburban office in Flemington. “It really is a fight for survival.”

In the financial year to June 30, 2011, Harvey Norman made a net profit of A$252.26 million ($246.27 million) on revenues of A$5.08 billion. But this May, the retailer reported a 44 percent drop in profits for the third quarter.

Australia’s once thriving retail sector is going through one of its worst periods in nearly 30 years. Last year, retail sales grew by just 2.4 percent — the weakest since 1984 when the Australian Bureau of Statistics first began compiling data on them.

Although online retail sales represents just 4.9 percent of the total retail spend for the year, it was an increase of 29 percent, far surpassing growth in traditional bricks and mortar sales, according to the National Australia Bank’s Online Retail Index.

However, despite the concern about the bulk of sales going to international retailers, the index found domestic online retailers accounted for three-quarters of all sales.

According to Goldman Sachs, there were 19 major bankruptcies and restructure of retail brands in Australia, which saw 515 outlets close last year. Among them were Colorado casual wear, and bookstores Angus & Robertson and Borders.

So far this year, 174 retail outlets have closed and Retravision Southern, which sells electrical goods in Tasmania, Victoria and southern New South Wales, recently announced it was going into voluntary administration with debts of more than A$30 million.

Despite all the problems, Gerry Harvey is determined to fight on.

At 72, he could have thrown in the towel years ago and retired to spend time on his other passion — breeding thoroughbred racehorses. He is one of the world’s biggest racehorse breeders with about 1,000 horses and five studs — three in Australia and two in New Zealand.

“I love this business and even though I am 72, I still think like a 40-year-old,” he says, breaking out into a broad grin. “Besides, I am not ready to retire. Most of my mates who have retired are dead. They died of boredom.”

So why is retailing going through such a difficult time?

“Retailing is fundamentally no different today from how it was 100 years ago,” he says. “But today the Internet has caused a ripple and that ripple is becoming bigger and bigger and causing a lot of pain for retailers.

“You combine that with the economic climate we are seeing in most parts of the world and then you have a double-edged sword. Over the last one to two years, a couple of hundred shops closed.”

One of the problems, he says, is cheap imports with goods under A$1,000 not having to pay goods and services tax.

“The government should look at this as it is creating unfair competition,” he says. “But no one wanted to know anything about it.”

A good example of what he’s talking about is a story his optometrist told him: “She received a nasty letter from a customer who wanted to know why she had charged A$500 for a frame when it could be bought online for A$240.

“Here you have someone who has gone through the trouble of becoming an optometrist, setting up a business; (on the other hand) an overseas site can send frames with no tax, no compliance costs, no wages, no rent … No nothing and they don’t contribute to the economy.

“If a government doesn’t understand that is wrong then I don’t know anymore. When you speak up you get attacked by anonymous, faceless people on Twitter and Facebook. It is quite nasty and personal … It is ugly.”

Harvey doesn’t blame the consumer for shopping around for the best price but discounts, he says, are becoming more and more pronounced. “We do it, everyone does it but in the end, there will be only a few that survive,” he warns.

For retailers in Australia, he doesn’t see any light at the end of the tunnel.

“The way things are going, there will be a lot less retailers operating at the end of the year than what we have today,” he says. “Stores are closing every day. No one is opening shops; if anything, they are closing shops. We are probably better placed than most because we own most of our stores, which gives us a better chance for survival.”

Harvey believes the key to success will be retailers like Harvey Norman who can combine bricks and mortar and the Internet.

“I don’t think anyone with an Internet-only retail business operating out of a backroom somewhere is making any money,” he says. “I know there are people out there who say bricks and mortar are gone but that is garbage. The most successful is the combination of the two and that is the case around the world.

“We are on the Internet but our Internet turnover is equal to just one of our stores.”

He estimates Internet sales average about A$60,000 a day — or about A$20 million a year.

“That is nothing when you look at the big picture,” he says. “Our sales last year were over A$5 billion. Our Internet sales are of little or no consequence in terms of the bigger picture but we know we have to be there.”

While he doesn’t dispute that the Internet has transformed people’s lives and will continue to do so well after he is gone, Harvey is confident that Harvey Norman will weather the current storm.

“It really is a question of who will be the last man standing when the dust settles,” he says. “I hope it is Harvey Norman. We are a diversified retailer and I think that gives us strength. Apart from that we have A$2.2 billion worth of real estate — something most of our competitors do not have.”

Harvey is irked by analysts and fund managers who know what the company is worth but are only interested in making a quick buck.

“They don’t look at the long term,” he says. “Their job is to make money now — if they don’t, they get fired. That is the reality of the world we are living in today.

“Everything is about now.”

He says he understands that.

“But I still tell them we own half our company,” he adds. “We have a reason to be around for a long time. Most people who own public companies do not own them. They don’t have a reason to be around for a long time.”

He is 72 and has worked for himself all his life and doesn’t intend to give up now.

“I love this business and I have a lot of interests,” he affirms. “I have a good reason to get out of bed in the morning.”

BIO

GERRY HARVEY

Co-founder and Chairman

Harvey Norman Holdings, Australia

CURRENT STATUS:

Harvey Norman has 195 franchised outlets in Australia and 96 company-owned stores. It also has stores in New Zealand, Ireland, Northern Ireland, Singapore, Malaysia and Slovenia.

October, 1982: Harvey Norman starts with just one store in Sydney’s Auburn suburb with the money obtained from selling Norman Ross.

1982: Norman Ross expands to 42 stores in New South Wales and Queensland.

1961: Norman Ross established with friend Ian Ross.

1958: Drops out of university and subsequently, works first as a door-to-door salesman hawking vacuum cleaners and later, TV sets

1956: Joins Sydney University after finishing school in Bathurst and Katoomba.

QUICK TAKES:

Biggest mistake: Not taking over Myers (an upmarket retail chain). I could have got that for about A$6 billion ($5.8 billion) and could have turned that into A$20 billion. For some reason, which I can’t recall, I didn’t do it. But that is life!

Biggest inspiration: My inspiration comes from those who are successful. When I was starting out I would search out older, successful businessmen and soak up everything I could from them. I still do that.

Greatest passion: Business and horses.

If you had to do it all over again, would you change anything? Don’t know. I have enjoyed the trip so far.

Born: Nov 18, 1939