In an interview with Inside Retail this week, Gerry Harvey revealed the business philosophy that has driven decision-making at Harvey Norman over the past six months and resulted in unprecedented increases in sales and profit. We asked the retail veteran and executive chairman of the global furniture chain how long the ‘boom times’ will last, what he’s heard about the Melbourne reopening and whether retail rents will ever change. Here are his insights. Inside Retail: You’
#8217;ve described the past few months of sales growth as unprecedented in your career as a retailer. Can you elaborate on that? Gerry Harvey: At the beginning of the pandemic, the thinking was that disaster was just around the corner. At no stage did we expect the boom conditions, which we’ve never seen before and are totally unexpected. It came from left field. You started to see increases of 20, 30, 40, 50, 60 per cent in shop after shop. And that was happening all through March, April, May and June. We thought it might peter out. But it’s been happening in July, August and September. We’ve had six, seven months now of unprecedented sales increases. It’s way beyond what you would ever expect – even in boom conditions. I’ve been through 60 years in retail, I’ve been through a lot of downturns and a lot of upturns, but I’ve never, ever seen sales increases like this. IR: Do you think it is being driven by [the federal wage subsidy in Australia] JobKeeper and people being propped up by short-term government support that’s going to come to an end? GH: I don’t think that’s a very big part of it all. The biggest part is people who’ve got money, who are still earning, but are not spending it in restaurants and on overseas travel and things like that. And they’ve been spending such a lot of time at home that they’ve decided to buy a new lounge or fridge, or paint the house or fix the garden. I don’t think the money that the government is throwing in is as big as that [uplift in spending], but who knows. IR: Then you must be pretty optimistic that the boom times will continue beyond this month and maybe into a good deal of next year… GH: Well, again, if you had asked me in May or June, I would not have thought we would get the sales that we’ve been getting in July, August and September. And I wouldn’t have thought October, November, December would be that good. They still might not be, I don’t know, but the general consensus – from talking to all our shops and talking to the customers on the floor – is that we’re going to have a very good October, November, December. So if that’s the case, you’ve got to look at next year and what’s going to happen then. We’re open for business in every country in the world now. We’ve been closed in every country in the world; the only country we stayed open in was Australia, and now that’s closed in Melbourne. I’ve been ringing around trying to get some consensus on when our shops will open in Melbourne. And the general consensus is that it won’t be October 26th, it will be between the 5th and the 12th of October. Now, whether that’s right or wrong, who knows? If that happens, then those Melbourne stores will be extraordinarily busy. The interesting thing is talking to people in Melbourne. There’s a love-hate relationship with the Premier. You’ve got people down there who want to cut his throat, and you’ve got other people who want to make him a saint. He’s really polarised the community. We were open all the way through this thing in Australia, so the fact that Harvey Norman was open, and I think every furniture shop and electrical shop was the same, had no effect on whether the figures went down to close to zero or zero. So when you get down to having 10 or 20 or 30 cases a day in Melbourne, if Harvey Norman was open, or our opposition, then history says, and the evidence is, that it has no effect. IR: I know some of the other countries that Harvey Norman operates in, like the UK, are seeing a second wave now. Are you anticipating that your stores in other markets might close, just as the Melbourne stores reopen? GH: We have no inkling that’s going to happen. We were closed for extended periods in all those countries, and we had the second wave in New Zealand, and we were closed for less than two weeks and only in Auckland. New Zealand’s pretty much under control now, and now you’ve got states [in Australia] starting to talk about opening borders this week. It does look like a lot more borders will be open over the next month or two. But if we get a second wave here or overseas, who knows? I’m not Nostradamus, and neither is anyone else. IR: What are you doing to capitalise on the opportunity while you’ve got it? GH: You’ve seen what we’ve done. Newspapers have been the big beneficiary because we’ve wrapped every bloody newspaper in the country. If you’re in the newspaper business, you want to erect a statue to Harvey Norman. Not to me, to my wife, she’s the one who does it. And now a lot of other people are going to them saying if it’s working for Harvey Norman, I want to try it. Advertising has increased substantially in newspapers right across the country. We really pushed that very hard, and it’s worked for us, so now we’ve been doing it overseas as well. If it works in one country, we give it a try in another. IR: What will your increased profits allow you to do that you couldn’t do before? Will you be paying bigger dividends to shareholders? Are there any projects in the pipeline that are on the table now? GH: Going into this pandemic, we had an $800 million facility of which we’d used over $600 million. But now we’re cashflow positive, so we’ve got money in the bank and don’t know what to do with it. When you’re in that situation, you obviously don’t stay like that, whether you pay it out in more dividends, buy another business, expand your own business, or get really scared thinking something’s going to happen so you stay cash flow positive for a while. We just watch it day by day. IR: In terms of a potential business acquisition, is there anything you’ve got in mind? GH: No, no, no, we don’t have anything in mind at all. But the interesting thing is that we’re fortunate we’re in the right category. If we had a restaurant, hotel, or travel business, then we’d be in dire trouble. I’ve got a lot of other business interests other than Harvey Norman, and some of those are going terrible. It’s nothing to do with anyone’s ability, Harvey Norman is just extraordinarily lucky that they’re in the business they’re in. IR: Have there been any challenges or pitfalls in keeping up with the enormous growth? For instance, keeping products on the shelf, or in warehouses to meet that demand? GH: We gambled on this thing. We thought to ourselves, do we buy or not, and we went out and bought very heavily in March, April and May. Now, even though our stock levels are still very good, there’s a lot of product that we just can’t get. There is either a six-week delay, a 16-week or a 26-week delay. Our sales would be even higher if we could get some of that stock. At the moment, if you want a fridge, we could give it to you tomorrow, but if you want a particular fridge, you might have to wait eight weeks. If you want a lounge, you can have it tomorrow, but if you want it in that colour, delivery is 16 weeks IR: As both a landlord and a tenant, what are your thoughts on the push to restructure the way retail rents are written so that they are no longer based on fixed increases, but rather a percentage of sales? GH: It’s a nice thought, but it will never happen. Landlords won’t do that. They’ll say, I won’t cop that because you’re not going to put your internet sales in there. The only way that could ever exist is if someone said, I can’t rent this shop, I’ll take 5 per cent of your turnover and at least I’ll get something. This is nothing new. That deal would have been done 50 years ago. It would have been done 100 years ago. It will be done tomorrow. But there won’t be much of it. It’ll be so small it doesn’t matter. IR: Earlier this year, you said in an interview that Covid was an opportunity for businesses like Harvey Norman. Given the health impact of Covid, I think people felt it was not the right time to talk about business opportunities, and there was a bit of backlash. But now that we’ve seen it play out, and your comments have proved to be accurate, do you feel vindicated in being a bit ahead of the curve in realising the opportunity? GH: We could go into a Great Depression tomorrow, and if you interviewed me, it’s more than likely I would say that this is a great opportunity for my business, because my view would be that I could operate in that environment in a way that others wouldn’t. So I would see that as an opportunity as well. The way I read the world, my greatest opportunity in business is when things happen that are unusual and unprecedented, because then a good retailer or a good business person adjusts, does certain things that others don’t, and they survive and it becomes an opportunity. I’ve been doing this for 60 years, and I know that when things happen that are unexpected, the really good ones can benefit, and the ones that are not so good will fall by the road. It doesn’t matter if you have a restaurant or travel business – which has really been hit hard – there could still be opportunities because you might suffer at the moment, but you might get something out of it where the other bloke will get nothing. When things happen that are different to the norm, every good businessman I know would say here is an opportunity. That’s just how you’ve got to think. If you didn’t think like that, you wouldn’t be a good business person.