Gerry Harvey banking on ‘world-changing’ AI boom to revive sales

Harvey Norman founder Gerry Harvey is holding his breath for artificial intelligence to drive a new generation of high-tech electronics that he hopes will bring a new rush of customers into stores after the company unveiled falling sales and profits for the first half of the 2024 financial year.

The veteran retailer said he felt “a bit depressed” about the lower foot traffic and poorer performance figures during the six months to December 31 as consumers cut back their spending in the cost-of-living crunch. But he’s expecting a new range of products to be released onto the market in a few months to revive demand.

Gerry Harvey is the co-founder and executive chairman of Harvey Norman.Credit: Louise Kennerley

“The two major retailers that will benefit from [artificial intelligence] would be JB Hi-Fi and Harvey Norman,” Harvey said in an interview.

“If the new technology that comes out from June, July onwards this year is as good as they say it might be, then that would make quite a big difference. We’ll just have to wait and see what that technology is.”

He declined to detail how artificial intelligence might transform products sold in store, and said the question was better directed to “leading chipmakers and manufacturers”.

“I’ve been told certain things, but I’m not going to talk to anyone about it,” he said. “If it’s as big as some pundits think, it will be huge, beyond our current imagination”.

“It’s the biggest topic in the world … This is not big news, it’s huge news. This is world-changing.”

Net profits at the ASX-listed furniture, white goods and electronics retailer slumped 30 per cent to $204 million in the December half, while operating earnings suffered a 31.8 per cent drop to $694 million, the company reported on Thursday. Total sales across the whole business dipped 6.7 per cent to $4.6 billion. Franchise margins slipped to 4.5 per cent from 6.8 per cent this time last year.

Cost-of-living pressures such as higher rent, utilities bills and groceries have curtailed household spending, with Australians shopping more carefully and switching to more affordable alternatives.

“There’s a bit of price sensitivity, they would like to buy the $3000 fridge, but they buy the $1500 one instead,” Harvey said. However, he said his company was oriented towards older, wealthier Australians who are financially secure and have likely paid off their mortgages. “We play to that.”

‘The next year will probably be one of the more interesting years in all our lifetimes.’

Harvey Norman’s Gerry Harvey

The retail veteran expects economic conditions to improve in the latter half of the year, with interest rates steadying, unemployment staying at moderate levels, inflation easing and consumer sentiment improving.

Looking at his company’s product mix, Harvey said there weren’t any standout performers, with categories such as TVs and lounges generating satisfactory sales.

“It’s not like you’ve got lots of hot products, but that may change in the next year,” he said. “The next year will probably be one of the more interesting years in all our lifetimes.”

Harvey Norman has declared a fully franked interim dividend of 10 cents per share, payable on May 1. Despite the decline in sales, investors cheered the update, sending the share price up nearly 4 per cent in afternoon trading as analysts noted the figures exceeded market expectations.

Harvey Norman sales and profits declined as consumers curtail their spending.Credit: Josh Robenstone

Documents filed with the ASX also signalled the business is investing in improving its digital and online offerings. During last year’s Black Friday sales, Harvey Norman’s website crashed and lagged between 8am to 8pm, unable to keep up with high online traffic.

However, Harvey said only a small fraction of its sales were online (6 per cent in fridges, 15 per cent in computers), with many internet purchases made after the customer had come into a store to see the product in person. The company has invested several millions into upgrading its physical showrooms, in contrast to ecommerce-only retailers Temple & Webster and Kogan.com.

Harvey dismissed the business-model of online-only shops such as Temple & Webster, which have found it hard to keep the momentum they had early in the pandemic, when a lockdown-driven shopping boom boosted their profits.

Temple & Webster.Credit: Peter Braig

Temple and Webster posted $13.9 million in net profits in the 2020 financial year, but earnings have steadily declined since then to $8.3 million in fiscal 2023 (although it recently revealed a record half in which revenue shot up 23 per cent).

Kogan.com has been unprofitable for the past two financial years, booking a $25.9 million net loss in fiscal 2023, but has changed its business strategy after reducing excess inventory built up during the pandemic.

The about-turn helped it to more than triple its net profits to $10.2 million in the December half. Kogan.com announced it is hiking the cost of its premium subscription from April 8 for loyalty customers, who are responsible for 60 per cent of its sales.

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