The true story behind Gerry and his stores

GERRY Harvey is the face and even more in some ways the voice of Harvey Norman, but not one in a thousand who walk into one of ‘his’ stores would realise they aren’t actually directly operated by Harvey or even his company Harvey Norman.

All the Harvey Norman stores overseas in carefully targeted locations – Slovenia and Croatia (but not Serbia), Ireland and Northern Ireland (but not Britain), Malaysia and Singapore (but not Indonesia), and of course ‘far-eastern Australia’, otherwise known as New Zealand - are companyoperated. But the Harvey Norman stores in Australia – Harvey Norman themselves, Domayne and more recently Joyce Mayne - are all franchised. They are independently owned and operated by separate nameless (and un-voiced) medium-sized businesses, investing and risking their own money on the ‘Harvey Chutzpah’ and the far more sophisticated game-plan which actually underpins it.

This plays into the quite unique retail operating model that Harvey and his wife and company CEO Katie Page have built up – and which is so very different if equally successful to the more conventional models of the other two great 21st century successes in non-food retailing, JB HiFi and Solomon Lew’s Premier group.

In their two cases, the company does operate all the stores. Understanding the unique Harvey Norman structure also plays into the debate – and indeed rising hysteria – over JobKeeper: whether those who shouldn’t have got it should pay it back; and even some of those who qualified should as well.

In the 2020 financial year the ‘Harvey Norman Group’ got around $22m in JobKeeper, but Harvey Norman the company only got $2.4m. It got another $3.6m in the 2021 year, making just $6m in total.

It is this $6m which Harvey Norman has repaid – an utterly insignificant figure either way in the near $2000m of group operating profit over the two years.

Of the $22m paid in 2020, almost of all it – nearly $20m – went to the quite separate franchisees actually operating the stores and employing the staff and paying their wages, copping the full blast of the national lockdown in the June 2020 quarter. Presumably a similar or perhaps somewhat smaller amount flowed in 2020-21, thanks to Chairman Dan’s four-month lockdown of one-quarter of the national economy. Any suggestion those franchisees didn’t need it is beyond stupid, it’s offensive. They would have finished deep in the red on their employment costs, before accounting other operating and then their fixed costs like rents.

This brings us back to the Harvey Norman structure – that it actually operates three separate businesses.

The biggest chunk, about half the group operating profit, comes from the franchising operations: Harvey Norman taking a slice of store revenues in return for all the things the franchisor delivers that makes the business work for the franchisees.

About a quarter of group profit comes now from the owned and operated offshore stores. The final quarter comes from Harvey Norman’s property business – the bit that gives the company its unusual edge.

It ‘owns’ – either literally, freehold, or figuratively as in leased – all the stores that it rents to its franchisees. So they pay rent as well as their franchise payments. Harvey Norman abated $6m in rents for those of its tenants whacked by Chairman Dan’s lockdown. That was quite the opposite, you might say, of Lew’s refusal to pay rents to his landlords; and also about double what Harvey Norman got in JobKeeper payments in the year that it’s now repaid. Further, as Harvey Norman has developed centres for its stores, it’s also developed a portfolio of tenants of other retail brands, broadening its property business out from simply being a landlord of its own stores. The truth is more interesting than the frenzy.