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Harvey Norman And The Real World

I was having tea and toast this morning when I spied this quote from Gerry Harvey……

HARVEY Norman executive chairman Gerry Harvey says industry conditions remain dire and he expects more retailers will go bust next year after the Christmas sales are over.

”There are more retailers currently under pressure than I’ve ever seen … I’ve been in retail 50 years,” he told reporters after the company’s annual meeting on Tuesday.

His prediction comes less than a month after the collapse of discount chain operator Retail Adventures, which announced that 32 stores will close and 650 jobs go by the end of this month.

Mr Harvey warned that despite the wave of failures over the past two years, ”there’s plenty more to go because I have them all coming to see me [saying] ‘Will you take us over, will you buy a share in the company’ etc etc.’

Having not bought a book, piece of clothing or item of footwear from a local retailer for many years it set me wondering again if this is not the new reality for retailers.  This opinion was reinforced  after watching the interview with Jeff Bezo’s of Amazon

The thing that irks me about retailers is that they have simply failed to understand that the world has changed and that charging someone $199 for a pair of shoes they can buy online for $49.99 are long gone. Bezo’ is famous for saying your margin is my opportunity – that would terrify me as a retailer if I didnt have a way to counter it.

At the heart of the problem is a lack of fluidity – traders suffer from the same lack of fluidity when they refuse to accept that the world has changed and what they did in the past may not work in the future.

As a case in point many years ago during the tech boom I had an acquaintance who worked for Sun Microsystems who became heavily involved in margin trading his own stock and every other piss poor tech stock he could find. Over the space of a few years the house got upgraded, the Porsche Turbo appeared in the driveway as did the other prime sign of impotency – the Harley Davidson.

All of it leveraged from an already leveraged tech portfolio. I asked him one night what would he do when the music stopped. His response was this time its different – the world has changed and off course everyone will be buying their pets online in the near future. A few weeks later the market dropped its guts and I got a phone call one evening asking whether there was anything I could do to help him with his position in Infospace that he had leveraged at about $US1,000 and which had promptly halved. I said sure I will just ring them and them to make the price go up again.

Within a few months the house, the car and the bike were gone. The world changes and people don’t notice that it has and they have no plan for what they might do if it changes. The world has changed for retailers and they just dont get it – or they just dont care.

Harvey goes on…..

”You’ve got so many companies out there in that situation.”

He told investors the long-term plan for Harvey Norman – which is the only retailer backed by a multibillion-dollar property portfolio – was to outlast the competition.

The good thing about markets is that they rate companies very effectively on the quality of their management and the returns this management is capable of delivering to share holders. If I had invested $1 in HVN in 1983 it would now be worth $0.95 – not really a ringing endorsement for the strategic vision of the company.

If HVN really does have a multi billion dollar property portfolio then I would suggest they get into property management because they are clearly not very good at this retailing business.





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