Gerry Harvey’s been having a bad year. This time last year he was moaning about the Internet stealing his business and now his profits are down.
In Mark Fletcher’s Newsagency Blog, Gerry gets a serve for dragging the entire retail channel down.
Mark quite rightly points out that Gerry’s problems are of his own making and his chain’s difficulties aren’t necessarily those of the rest of the industry or even shared by individual franchises within the Harvey Norman group.
While I’ve been as critical of Gerry as anybody else, maybe it’s time to give him a break.
It’s worth considering how Gerry made his billions. When he started in business in the late 1950s, it was tough for the average person to get credit. At best working families could get something put aside at the local store or enter into an Encyclopedia Britannica style subscription plan.
Gerry and his generation of retailers changed that. They made credit available to the masses who could suddenly afford to buy household appliances and electrical goods without years of savings.
I remember my parents buying things from Norman Ross, Waltons or the ACTU’s Burke Street store (Bob Hawke once stepped on my mum’s foot while she was shopping for a sofe) because working class people could get credit there.
Gerry was at the beginning of the consumer revolution that defined the second half of the Twentieth Century.
In the late 1980s financial deregulation changed the game again and Gerry’s business took off as credit became even easier to get with new providers entering the market. First we saw three month interest free offers and by the mid-2000s six year interest free deals were available.
These deals were so good that Harvey Norman franchisees often made more money selling the credit deals than on the actually product that the ‘no interest’ loan had been taken out to buy.
For Gerry, this was insanely lucrative as his business was able to clip the ticket at almost every level of the retail and distribution chain while moving much of the risk and capital cost onto franchisees and landlords hungry for high traffic anchor tenants.
In 2008 this entire model changed as the credit boom came to a crashing halt and consumer spending with it.
Business models based on cheap credit now have to find something else that works and this is what Gerry Harvey is now struggling with.
To complicate matters, the Internet has changed the distribution model that worked for Harvey Norman and other bricks and mortar retailers. All of them are now having to make a major shift in the sales cultures.
Adapting to this new world is tough for everybody and we should have some sympathy for Gerry Harvey as our businesses and jobs are being affected by exactly the same forces.
How Gerry adapts, or doesn’t, could be a bellwether for our own industries.