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Harvey Norman Set To Get Squeezed On Three Sides Following Steinhoff Deal

Harvey Norman is set to come under “enormous pressure” with their bedding and furniture business now targeted by South African retailer Steinhoff International who on Friday acquired furniture retailer Fantastic Holdings for $361.4 million.

The other side of their business consumer electronics and appliances is also under renewed pressure following the acquisition of The Good Guys by JB Hi Fi who now has over 27% of the Australian appliance market Vs Harvey Normans 24%.

Another threat to their business is Amazon who is currently looking for a CEO in Australia with a view to launching a local online operation in 2017.

Steinhoff who already own Freedom Furniture, Snooze and the Poco discount furniture stores in Australia, are a major global player in both the bedding and budget furniture market in both Europe and the USA.

Steinhoff currently operates 157 retail stores in Australia through the Freedom, Snooze, POCO and Bay Leather Republic brands. Snooze was formerly known as Capt’n Snooze but dumped the Capt’n from the brand in 2006.

The Steinhoff parent company has been on an acquisition spree, in August making a $US3.8 billion ($5 billion) buyout of the US’s largest specialty bedding retailer, Mattress Firm.

ChannelNews has been told that the Company plans to target Harvey Norman with mega furniture and bedding stores and that will also sell appliances. The Company is tipped to take over several Masters stores.

Steinhoff, which has its headquarters in South Africa and is listed on the Frankfurt Stock Exchange in Germany, is capitalised at over US$30 Billion.

The Steinhoff’s Asia Pacific entity reached agreement with Fantastic’s major shareholder, Julian Tertini, and the board to pay $3.50 a share – a 43 per cent premium to Thursday’s close of $2.45 and the highest price since 2010.
Steinhoff Asia Pacific director Tim Schaafsma said Fantastic Holdings was a “complementary business in terms of market segments, customer base and vertical integration.” He said it would broaden the brand portfolio and accelerate the growth of Steinhoff in Australasia.

A USB analyst said “This is a real threat for Harvey Norman, Steinhoff has excellent buying power and they are also a major manufacturer of furniture”.

“Harvey Norman does not break down their revenues by category, however former managers have said that the biggest contributor to profits is furniture and bedding. If this is the case and Steinhoff start taking market share away from Harvey Norman, as JB Hi Fi and The Good Guys attack their appliance and consumer electronics business the Company could come under enormous pressure”.

Mr Tertini who is also the chairman and holds about 40 per cent of the company, with his personal stake alone increasing by $41 million on Friday when the shares soared after the bid was announced.

The Financial Review said that Fantastic Holdings has been through turbulent times and was criticised for its lack of transparency over the departure of retail chief executive Stephen Heath, who quit unexpectedly in January this year, reportedly after a dispute with Mr Tertini over the payment of long-term incentives. Fantastic’s chief financial officer George Saoud resigned just days after. The reasons for their departure weren’t made clear by the company.

Steinhoff intends to keep running the three main brands of Fantastic Furniture, Plush and The Original Mattress Factory as stand-alone operations.

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