Gerry Harvey’s Charge of the GST Brigade
Gerry Harvey, co-founder and chairman of Harvey Norman Holdings Ltd, along with other retail interests including Myer, are calling for the sub-$1000 GST exemption on personal imports to be reviewed. They claim that international online retailers have an unfair advantage and are costing Australian jobs.
The Courier Mail’s Paul Syvret wrote a piece – Twitter bitter on Harvey’s GST plea – about the inevitable backlash. And for Harvey Norman or any other retailer making enormous revenues it should have been no shock at all that Australian consumers emphatically do not agree they should pay more to ensure Gerry and the GST Brigade can improve profits.
Have a quick look over the revenue section of their April 2009 Company Profile. The Gerry Harvey appeal for more money for Gerry Harvey was always bound to be unpopular – no doubt his marketing department started barfing into rubbish bins before the announcements were even finalised.
Harvey Norman Holdings Ltd
The business of Harvey Norman Holdings Ltd in Australia has never been about selling you a fridge or a new computer. Harvey Norman Holdings Ltd, in Australia, makes it’s money selling franchises – as of December 2009 there were 635 Harvey Norman, Domayne and Joyce Mayne franchisees in Australia. These operate in 73 Harvey Norman, Domayn and Joyce Mayne complexes.
Outside Australia is a different story… in New Zealand, Singapore, Ireland and Slovenia they are wholly-owned or controlled stores operating under the Harvey Norman brand name.
Interesting Points on Harvey Norman Holdings Ltd
The interesting part about that structure is that Harvey Norman Holdings Ltd don’t directly compete with their Australian franchisees. And if you take a look at the Harvey Norman, Domayne and Joyce Mayne websites they lack any ecommerce facility – their online marketing strategies are confined to providing product information.
Because, were there to be an online website selling fridges and computers under the Harvey Norman brand, which franchisee would be attributed the sale? The nearest to the customer? No. Profits of each sale would go directly on to Harvey Norman Holdings Ltd. In that sense, they would risk creating the impression that they were cannibalising their own franchisees.
Think about that for a few minutes… would the ecommerce site undercut the bricks and mortar franchises? Because their overheads would be much lower. So it’s not as simple for Harvey Norman Holdings Ltd to move into online sales as you might initially think. How would you feel as an existing franchisee if your franchisor sold the same products below your in-store offering? And if you were a customer, why would you use the ecommerce site if the prices were the same as the local bricks and mortar franchise?
If you read Twitter bitter on Harvey’s GST plea right to the bottom you will see that:
Mr Harvey confirmed yesterday that he is still exploring the possibility of establishing his own on-line shopping operation based out of China.Paul Syvret in the Courier Mail
That’s interesting stuff indeed. But that doesn’t mean they are going to be directly competing against their own franchisees… not really. And Gerry Harvey knows so… which makes his complaints about the sub-$1000-GST-free-argument a little redundant. If Harvey Norman Holdings Ltd sell online from China into Australia they will be selling to a different customer than the one who walks into Harvey Norman, Domayne and Joyce Mayne franchises.
Harvey Norman Franchise vs eCommerce Customers
As an experienced businessman, Gerry Harvey knows that his claim about being disadvantaged by the online GST situation is bogus. He understands that buyer behaviour is not binary and that the people who shop online are a different customer to the one his franchisees are likely to sell their wares.
He knows that the customer who buys a chair from LifeInteriors.com.au are not lost sales in a Harvey Norman franchise. They are different customers in different contexts. One is walking through a store because they want to experience a tactile product and ask questions… the other is shopping for convenience or bargains online.
And welcome to the world of globalisation, Gerry – that’s just how it is in 2011. What international traders (and Australian traders selling overseas) call these taxes are protectionist trade barriers. You can’t have it both ways. Tarrif and non-tarrif barriers are generally frowned upon and there is immense global pressure to remove these barriers to provide free trade opportunities.
Gerry Harvey’s Dastardly Plan
Meanwhile Gerry Harvey has this back-door problem where we don’t trust his all-Australian promotions. How many products are sourced outside Australia for Harvey Norman stores? And this venture in China can only be about selling Australian consumers cheap Chinese-made merchandise… because that’s the point of setting up an online retail division in China – it’s certainly not to sell Australian made products to the world.
The dastardly plan is to continue to be Gerry Harvey. Awesomely simple. Does he give a rat’s arse about the local retailer he puts out of business when he comes to your suburb with a new complex? No. He’ll pull off their heads and shit down their capitalist throats and scream at the moon. He’s about winning and expanding.
Harvey Norman Holdings Ltd are not losing money – by the look of their April 2009 Company Profile. But expect these big guns to do the Charge of the GST Brigade on a regular basis. They’ll get shot down again and again and again. But when your reason for being is the maximisation of shareholder wealth (the bigger the revenue the better at any cost) then world domination isn’t as big a goal as it sounds. That’s the dastardly plan.
Let’s not get side-tracked into thinking this has anything directly to do with Gerry Harvey selling fridges. He doesn’t. He sells franchises… and we’re talking franchises that are operating very profitably.
Update Note: The reason I pointed the reader at the April 2009 Company Profile was its simplicity to make the point. Yes it is over 18 months old at the time of writing this article. However, feel free to look at the Harvey Norman Holdings Ltd Annual Report 2010 to see that franchisee sales revenue has risen for each of the last five years to $5.19 billion in 2010. Things aren’t so bad for Gerry and the boys that we need to disparage the validity of the message in that April 2009 Company Profile.
