Harvey Norman — the vampire of Australian retailing

IT’S the strange anomaly in Australian retail. While Dick Smith closes its stores Harvey Norman is announcing amazing profits. So what’s going on?

HARVEY Norman is hard to kill.

Just last week, Dick Smith was gleefully predicting the big old school retailer could fall in a heap.

“If Gerry Harvey’s not careful, he’s going to be next. I just reckon there’s no money in consumer electronics — that’s why I sold out thirty years ago. And Gerry should realise that quickly,” Smith said.

The retailer named after Dick Smith announced this week it would close the stores of the failed chain after administrators couldn’t find a buyer. The chain made an absolute meal of electronics retailing and thousands of people are now going to lose their jobs because of it.

But Dick Smith was wrong about Harvey Norman.

On Friday, Harvey Norman announced its first half profits and they were a shock to everyone — they were up 30.7 per cent to $185.5 million. The retailer run by 76-year old Gerry Harvey is in surprising shape. It’s not dead at all. It looks ... healthy?

Sales of technology items just keep rising, Gerry Harvey says, and he is over the moon.

“I haven’t been this happy for a very long time,” he enthused to me yesterday afternoon.

Harvey is convinced he has stumbled onto a trick that is leading to a big boost in profits that his rivals aren’t getting.

It has been an awful time for retail. Nearly 19,000 retail businesses went bust last financial year. In the computer, electronic and electrical appliance sector, far more died than were born, as this next chart illustrates.

On the left in blue is businesses opening, and on the right is businesses closing. It hasn’t been a good year for electronics retailers.

Many expected Harvey Norman to be six feet under already. The company was dreadfully slow to adapt to the internet and for a while there, it wasn’t seeing much in the way of growth at all. But like a vampire, it proved quite tricky to finish off.

And now, amid the carnage of the retail sector, Harvey Norman has apparently found a way to lift his profits.

“This doesn’t happen very often,” Harvey said. “You might go 10, 20 years and not see this happen.”

He wouldn’t reveal what that trick was. “I’d tell Dick Smith tomorrow but I’m not going to tell you,” he gloated.

But I managed to weasel out one clue. He basically admitted the spark has came from the stores, which hints it is not related to ad campaigns or the website.

“A lot of these ideas emanate from the stores, not head office,” Harvey said. “If we didn’t have that input from the stores we would not be where we are today. Now, the head office people like to tell you, you know, they are the architects of it. They’re not. They certainly got on the bandwagon pretty quick.”

Harvey Norman is still not back to pre GFC figures, but they’re doing bloody well.

“To be able to get a 25 per cent profit increase on top of a 30 per cent profit increase in the sort of business we’re in, something’s happening. It just doesn’t happen [normally],” Harvey said.

“I just haven’t felt this way for so long about something, you know?”

Now, it would be possible to be unkind about the company returning to merely a fraction of its previous profit peak. It would be easy to point out sales growth isn’t actually looking that flash. But in an environment where competitors are dropping like flies, sometimes survival is all you need to have a chance.

And when you get a chance, you need to know when to take it.

Harvey — who met store co-founder Ian Norman when they were both door-to-door vacuum cleaner salesmen — knows you need a share of luck, and doesn’t pretend the recent return to profits is a strategic masterstroke, insisting “the luck thing has got to be in there.”

“We have hit a little chord the others haven’t hit and now we are going to fly.”

It is hard to imagine Harvey Norman soaring with the retail giants like H & M or Aldi. But for a company many people thought would be over by now, even a little bit of flying is a very welcome result, and it means a lot of Aussies don’t have to worry about their jobs.

Jason Murphy is an economist. He publishes the blog Thomas The Thinkengine.

Follow Jason on Twitter @Jasemurphy