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Harvey Norman Franchisees Walloped, Optus Cyber Attack A Problem

Back in November there was a sniff of a problem coming at Harvey Norman, when franchisees started complaining about stock levels. Then there was that memo from head office about being over stocked.

Today’s financials have revealed that the concerns over trading conditions were valid back in November, with profitability of the HN franchise operations declining $55.21 million or 18.9% to $237.65M. Ireland and Northern Ireland fell over 40%.

Also down was the margin from 8.53% to 6.7% as franchise moved to discount stock out.

Prior to the November alert, Harvey Norman increased franchisee loan receivables by $310.92m in an effort to fund their operating expenses as they transitioned to the post-COVID environment.

The reason given for the fall in franchisee sales was cooler than usual temperatures experienced in key cities such as Brisbane, Sydney and Melbourne that led to a substantial decrease in the sales of seasonal products by Electrical and Furniture franchisees.

Demand for air conditioning units, fans, air treatment units, outdoor furniture and barbeques all fell across the network of stores.

Franchisees, feeling the pain of slowing sales, benefitted significantly during covid when the revenues rolled in. Now they are facing new conditions with consumers cutting back on home furnishings, appliances and CE products due to inflation fears.

Post-lockdowns, franchisee sales were significantly elevated through to the 2021 Christmas period due to pent-up demand as consumers deferred purchases until the restrictions lifted, claim Harvey Norman management.

Harvey Norman CE franchisees, who were punting on the Optus brand to deliver increased mobile sales running into the peak holiday period, were impacted by the cyberattack on Optus, with the news of the attack slowing smartphone sales significantly.

“We are confident that the demand for Optus offers will continue to improve and return to prior levels,” management claims.

Harvey Norman’s overseas operations are also facing problems, with overall sales down 22%.

Their Ireland and Northern Ireland operation tanked by 41%.

Harvey Norman management are looking to make up for the overseas slump with new stores in Malaysia.

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