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Gerry Harvey Has A Crack At JB HI Fi Online, Claims Amazon Will Have To Open Stores

Harvey Norman Chairman Gerry Harvey who has spent the long weekend spruiking his new Auburn NSW store which has cost suppliers millions, ahead of a big new Sydney store from The Good Guys and falling revenues, is facing new Amazon competition where it could really hurt, bedding, he has also had a go at JB Hi Fi’s online business.

Harvey Norman is struggling with a franchise network that keeps sucking cash, stagnating sales, tightening profit and now a move by Amazon into cheap bedding a category that in the past has delivered “excellent” profits for the mass retailer, insiders claim that when initiated in Australia the move could hurt Harvey Norman profits.

During the weekend it was revealed that Amazon is taking a big stab at the mattress business, In the USA they have introduced an entry level Amazon Basics mattress for just US$130. Bedding and furniture are a highly profitable part of Harvey Normans business with nearly all furniture and mattress deliveries by external couriers or transport an area that Amazon has an advantage over Harvey Norman.

Earlier in the week Gerry Harvey and Katie Page were defending claims that they had reached an agreement with the creditors of its failed $100M dairy investment, Coomboona Holdings, that will now avoid liquidation and any further questions about whether the company traded while insolvent. A report from the administrators, led by Stewart McCallum from Ferrier Hodgson, said the group was “potentially insolvent from mid-March 2018”.

In an interview with Fairfax Media Gerry Harvey admitted that his online operation is costing him money to operate and that Amazon will have no alternative but to operate stores in Australia.

Currently the mass retailers online sales accounts for about 3 per cent of total sales, but Harvey says that sales channel shouldn’t be given undue focus when most of its customers continued to come into stores.

In a direct stab at JB Hi Fi he took a leaf out of US President Donald Trump’s text book claiming that retailers who were trumpeting their online sales growth were peddling “fake news”, he did not name those retailers.

Harvey claims that running an online business is actually more expensive than bricks and mortar, says Harvey, and the likes of Amazon would eventually open physical shops once it became serious about making profits – which is exactly what Chinese e-commerce giant Alibaba is doing he said.

The new store which is three times the size of an average Harvey Norman store is costing suppliers “dearly” according to suppliers involved in the new layout.

Both manufacturers and distributors being asked to fund the makeover of displays in store. CEO Katie Page says the now store strategy was developed by working with its major suppliers – from tech giants like Apple to high-end stove and oven brands – to discover how they wanted shoppers to experience their products. She failed to reveal that the vendors were being asked what has been described as “big money” to fund the new concept.

Harvey Norman has also hit up suppliers such as LG and Samsung to fund a weekend advertising campaign across NSW media for the new store.

Gerry Harvey, believe the store will help redefine the Harvey Norman brand in the mind of shoppers, at a time when it is struggling to find growth here.

Some say that Harvey Norman was forced to conduct the makeover after seeing what Terry Smart has initiated with instore merchandising at The Good Guys following the acquisition of the mass retailer by JB Hi Fi.

Earnings from Harvey Norman’s Australian network fell 7 per cent last financial year, and comparable sales fell 1.1 per cent in July and August.

The company’s share price has, meanwhile, been trading around three-year lows From a high of $4.54 this year the stock was trading at $3.52 on Friday.

Talking about his new store Harvey said, “I don’t think you can build a brand and let it stand still,”.

He added “I don’t want them to look at it and say ‘oh, I’ve been to Harvey Norman they haven’t changed for years.’

“I think they say that about a very big percentage of retailers across the country, and in some cases, they could say it about us. If you want to stop them saying that you have to give them a reason.”

The company expects a 20 to 30 per cent jump in annual sales at the Auburn store, where it has handed over large chunks of real estate to categories it thinks can grow, such as flooring, outdoor cooking, and computer games – a mainstay of its competitor JB Hi-Fi and The Good Guys.

Harvey Norman is also looking to cut exclusive deals with suppliers using their new Auburn store to trial new products or categories, which if successful, can then be rolled out to its other 195 Australian franchised stores.

“It’s big growth on nothing, but unless you have that narrative, you look like a dinosaur. And if someone like me comes out and says this is bullshit, [then] I’m a dinosaur,” he says.

“I’m not a dinosaur. But the average CEO of a retail shop is not going to come out and say what I say, because if he doesn’t his board is going to jump on him, because the ‘narrative’ is out there. But it’s bullshit – the reality is something else completely different.”

Harvey says the flagship strategy will give it an edge against what it sees as its main competitors – JB Hi-Fi.

Page says Australia was the last country where Harvey Norman opened a flagship store because it wanted to learn from the other locations and ensure it had the model right when it tried it here.

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