Gerry Harvey is Australian retailing’s most visible player, outspoken with a touch of the bully, but sometimes it’s an act, as Bill Eclairs explains.

Gerry Harvey is Australia’s least secretive billionaire. A high public profile, a willingness to be interviewed and express opinions, he’s very much unlike those other ultra rich Aussies, Kerry Packer, Frank Lowy and Richard Pratt. In fact Gerry can resemble a motormouth at times and this week he’ll find that comes in handy when he covers for a holidaying John Laws on AM radio station 2UE in Sydney.

Gerry, of course, is well-known for his retail businesses, Harvey Norman, Domayne and a half interest in the very expensive furniture shops that trade under the Space name. He also has extensive horsebreeding and racing interests, with a shareholding in the Magic Millions business.

His friends range from John Singleton to former investment banker, Rob Ferguson and the Rev Bill Crews of the Uniting Church. He’s generous with charities and plasters the Harvey Norman moniker across anything that moves, working on the adage that more is best. But likeable as he is, Gerry can be a bit of a bully at times. His brawl with former ACCC chairman Allan Fels would attest to that.

It stemmed from the Commission’s extensive investigation into so-called ‘bait and switch’ advertising claims at Harvey Norman. That’s when a cheap product is advertised, but when a consumer turns up to buy it, it’s not available and the consumer is pushed to buy a more expensive one.

That led to a loud and bitter slanging match between Harvey and Fels, with Gerry delivering most of the barbs. In the end sense prevailed and he shut up when it became apparent that the ACCC had ‘might’ on its side. There have been some questions raised in Crikey and in the Financial Review about some of the business methods and activities of Gerry and his companies.

There was publicity last year, some of it on Crikey, about the relationship between John Skippen, Harvey Norman’s finance chief and a small Sydney accounting firm that Skippen maintained links with. Then there was extensive comment in the Financial Review about that, the role of the franchises and their values in the Harvey Norman business, and the way the company took its profits.

Then there was his attempt last year to introduce an overly generous options scheme for executives that he eventually pulled after meeting unexpectedly strong opposition from major shareholders and some in the media who he had ‘fed’ by being quote of the week.

Gerry has already lost his company, or rather the company he and partner Ian Norman started years ago. Norman Ross was sold to Alan Bond back in 1982 for $25 million. They were sacked and started Harvey Norman in probably the most successful retailing move in this country.

When Gerry said, as he did at last year’s annual meeting, that he’s not in it for the money, he was right. Money of course helps. but Gerry has already built a retailing empire. Being paid $500,000 a year and $250,000 to his wife Katie Page, the CEO of the company, while a lot by community standards, pales when compared to the size of his fortune.

Harvey Norman is not just a company with its own stores, it has an extensive group of franchises inside many of the stores, and makes money from not only selling goods at a profit, but from the various fees and charges franchises and suppliers pay. Its also a property developer.

In many respects, its a bit like Coles of old, a target for Gerry’s outspokenness. Coles used to make property development profits, as well as collect an extensive array of fees and other payments from suppliers (as does Woolworths, a company Gerry admires under another ‘hard man’ of retailer, Roger Corbett).

Gerry’s been quite vocal on Coles problems and methods in the past, although these have been tempered as the giant retailer has got its act together under CEO, John Fletcher. Gerry has made no secret of the fact that he buys and sells Coles shares when they fall and rise in price. On past form, at current prices above $8 a share, Gerry would have quit for a profit, but perhaps he’s decided to stay for a bit more of a ride on Fletcher’s recovery. With his horseracing background, Gerry would know all about sticking with a ‘good thing’ and at the moment Coles is the form stock in Australian retailing.

Domayne was started because Gerry and his wife, Katie Page, realised that the Harvey Norman stores were not reaching a large group of consumers. As he once put, “the people who wouldn’t be seen dead in a Harvey Norman store”.

Domayne is designed to appeal to a more mid-market demographic. Upwardly mobile shoppers who have been to Harvey Norman and walked away empty-handed. The locations are interesting, located around existing shopping destinations, with store designs that a bit more upmarket than Freedom Furniture, but not as much as some of the more expensive specialist stores in Sydney’s eastern suburbs.

It’s been hard going for the past two years convincing consumers that there’s a difference between Domayne and Harvey Norman. The shopping catalogues for Domayne have a look of pale colours, beech, chrome, stainless steel and crisp images. Harvey Norman still screams cheap, slightly tacky, heavy reds, browns and dark blues.

Domayne is more bedding, furniture, lifestyle electronic goods. A cool, refined, classy look. The Domayne catalogues have the touch of Katie Page, the managing director of Harvey Norman and Gerry’s second wife and probably one of the cleverest and toughest people in Australian retailing. Just as the early Harvey Norman catalogues had her touch, with her insistence on water shots and blues in many of the photographs because they were selling to a predominantly Sydney audience.

She’s also Gerry Harvey’s guardian, looking after his health, pushing him to eat more organic foods and exercise. She can be quite ferocious in maintaining their privacy, especially on weekends which sometimes are spent in Sydney, or at the horse stud in the Hunter Valley.

But both Gerry and Katie are ferocious competitors in business and lately the online newspaper DCN (Digital Connect Now) has carried a couple of very revealing stories about the way Harvey Norman conducts business. DCN summed up how the industry feels about Harvey Norman in a recent story “Harvey Norman’s tough terms”. We’ve pulled out some of the best details here:

“Many vendors in the IT and AV markets are being squeezed so hard on margins by Harvey Norman that they have resorted to delivering one price for the giant retailer and a much higher price for the rest of the channel, an investigation by DCN has revealed.

“Several leading vendors have told DCN that Harvey Norman is demanding and receiving margins of up to 20 per cent on floor prices before additional rebates of up to 15 per cent on stock sold.

“Some of the high profile IT and AV companies who have to struggle in their relationship with Harvey Norman are Sony, Samsung, LG, Philips, NEC and Panasonic, as well as IT companies like Hewlett Packard.

“David Hailes, who until a few weeks ago was the Corporate Advertising Manager for Panasonic, admitted to DCN that Panasonic engaged in differential pricing. Prior to requesting that we would not publish his comments, he said: ‘Everyone knows that doing business with Harvey Norman means that you don’t make money. Vendors use Harvey Norman as a loss leader to build awareness and pull through volume. They then make their money by pricing products higher to non-Harvey Norman resellers and distributors.’

“DCN has established that several high profile vendors are under pressure due to the trading terms demanded by Harvey Norman. A senior executive of one major Asian supplier said: ‘We are losing money selling through Harvey Norman. They don’t believe in equal partnerships. All they want to do is squeeze vendors so that they can make more profit.’

“A former senior product executive of Sony told DCN: ‘The ironic situation is that they run an internal advertising department as a profit centre, and you don’t get floor space unless you commit to Harvey Norman advertising, which ranges between $50,000 for space in an information technology catalogue, to between $5000 and $15,000 in a weekend catalogue’.”

After running this in the sealed section a couple of weeks ago, Crikey received an email from a Harvey Norman supplier with their own experiences of the Harvey Norman way. In the process of dealing with the Harvey Norman system, the supplier met a “disenfranchised” Franchisee who was upset and provided this explanation about how some goods, say furniture and bedding, are purchased:

“Although the mark ups are considered to be in the mid range end for retailers, furniture suppliers loose more than 11% off of their invoice. The supplier must deliver, ‘Free into Store’ (FIS) the product to the store. When the supplier is paid by cheque in the mail, which in itself is remarkable considering they are in the technology business (in 14 days from processing of the invoice which can take weeks) they are paid $89 from the parent body but the franchisee pays the parent body $100 so it is this figure that the mark up is worked from. So 5% is taken from the invoice for not waiting 60 days for payment & 6% is what they call a Volume discount. Hence the 11% cut off the invoice price for suppliers.”

Harvey Norman franchisees do not buy the franchise they are operating but start their own company employ their own staff & pay their own rent & other on costs and are allocated a store. The starting pay a year or so ago was a guaranteed salary of $40,000 plus phone & car plus 50% of the profit over the target figure.

That sounds like a pretty good deal until franchisees, after building up a business in one store, can simply be allocated space in another store. The supplier said the unhappy franchisee said they had built a business on Sydney’s North Shore up to where it was earning $200,000 a year.

Overnight that store was re-allocated to a new company and the franchisee was allocated a new store in Sydney’s south-western suburbs where they struggled to make the $40,000 a year guarantee. With Harvey Norman selling so much audio visual and electronic goods that the existing 50-50 split between Harvey Norman and the Franchisees was changed to a 70-30 per cent split, with the franchisees being lumped with the lower cut.

Different parts of each Harvey Norman store are different franchises. Bedding is separate to furniture, as is audio visual and computing.There are over 200 franchises scattered through the company, with a long list of people wanting to join.

So with Gerry entertaining Sydney-siders this week, and others elsewhere in Australia on the John Laws network of stations, just remember that whatever he says is for calculated effect. He might sound like a motormouth, he might sounds scatty and a little out of focus. But it’s an act. Gerry is a tough man. He’s had to be to survive in Australian retailing for so long. As Packer, Lowy and Pratt have shown, you don’t become a billionaire by being softheaded. He’s no fool and his wife Katie is his closest friend, business partner and guardian. It is in fact a double act.

Feedback to Sydney @crikey.com.au

Peter Fray

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