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Honking Harvey Norman’s Hong Kong Threat

Harvey Norman's Hong Kong threat

Recent statements from Harvey Norman’s Director, Katie Page, makes it clear that the retailer is fed up with Australian attitudes, writes Chris Morley. Perhaps it’s time to show it the door?

Today, Harvey Norman Director Katie Page is quoted in mainstream media as saying that running a business in Hong Kong would be easier and if Harvey Norman did so it would be successful and other retailers would follow suit.

Page went on to attack the government about the GST low value import threshold (LVIT) stating that the GST, tariffs and compliance laws are holding local retailers back. One quote from Page in particular is guaranteed to raise a few eyebrows.

“How would you like it if overseas competitors could ship into this country and have costs of up to 50 percent less than yours, because the government hasn’t dealt with this issue?”

Is the Australian Government to Blame?

This statement appears both desperate and drastic. Are we really to believe that if our government doesn’t change the law, Harvey Norman will just pick up its bat and ball and go to Hong Kong?

Of course, governments need to stay abreast of changes in global situations and have an obligation to protect local jobs, promote local industries and ensure adequate collection of taxes to provide necessary services, but generally speaking government should stay out of the businesses’ way.

The GST’s application on items over $1000 purchased from overseas is not the prime cause of retail woes and I am always amazed at the attention this one issue receives. Online sales in Australia amount to six percent of total retail, and of that six percent, less than 30 percent goes overseas (according to the NAB Online Retail Sales Index). This means a total of less than two percent of retail is going overseas – is this really crippling the industry like we are being told?

Current Factors Affecting Australian Retail:

  • AUD is currently trading above parity, making overseas items cheaper
  • The internet has created many options for consumers
  • Local service is still preferred than buying offshore
  • Many consumers will research online then buy in store
  • Online retail is best accompanied by in store offers as well aka ‘omnichannel’
  • Service and engagement are still vitally important to retail success
  • Collecting GST on imports under $1000 costs more than it would collect

There’s the Door…

Harvey Norman’s recent advances in online is to be commended, but the latest comments in the media appear extreme, and unlikely to win public support after announcing a net profit of $172.5 million recently. The current government and the coalition would also be unlikely to touch this issue given the financial strains already on households; a perceived extra cost on households never goes down well before an election.

Does Harvey Norman really want the government to step in and would it actually move operations to Hong Kong if there’s no intervention on GST? Even if the government amended the legislation (which I doubt they will), it wouldn’t solve retail’s woes.

What will the consumer reaction be to these outrageous statements from Harvey Norman? I can’t help but wonder if the brand’s tagline, ‘Go Harvey, Go!’ is soon to be used against it.

 

20 Comments

    • Joel
    • 19th September

    All Harvey Norman hierarchy do in whine, mainly because they tried to go against ‘the Internet’, and pretend that real-life stores were going to live on…

    they are obviously in a lot more financial trouble than they let on when their owner and their big bosses cry to the media and beg Australians to change their habits.

    They spend so much time trying to convince Australians to be different, and spend more to support local, when the goods are all manufactured in the same place anyway.

    How about spending that time and effort to further your business for the future, guys?

    You bash Australians for internet ordering, but weeks ago you cried about how Internet sales are less than 1% ‘for all’ retailers.

    If you spend 1% of the money you spend on your physical stores, on your online platform, advertising and networks, then perhaps that 1% sale share will rise.

    Just because you franchised and now have to support a dying industry, because of the hundreds of Harvey Norman store-owners, don’t cry about it through the media to an audience that doesn’t care.

    Gerald, your time is over, Katie, you are pretty clueless, it’s time for a new-age breed there at Harvey Norman, otherwise we’d welcome your plans to open up stores in Hong Kong!

    Reply
  • Great article Chris!

    I couldn’t of worded it better myself.
    Keep up the good work

    Cheers
    Darren

    Reply
    • Anthony Stone
    • 20th September

    Harvey Norman and any smart retailer should do what a lot of the distributors, wholesalers and manufacturer’s agents are doing and that is opening an online store in Hong Kong, in China or anywhere for that matter outside Oz, do the transactions there, supply the goods here and avoid collecting and paying GST on those sales. Better price for consumer and healthier margins for the seller

    Reply
    • Kevin
    • 20th September

    Look around Harvery Norman, head to some of your competitor’ stores and have a look at their prices. You are well known for being expensive both offline and online. The GST threshold is not the issue here, your overall pricing strategy is. Plus, if the threshold was lowered customers would simply split out items across multiple orders.

    The marketplace is now global and many businesses are capitalising on shipping their products overseas. As a business owner myself I have customers all over the world from the United States to Europe and NZ. Online provides the opportunity for volume over profit margins. It’s quite simple, drop your prices and capitalise on the large volume of traffic available both domestically and internationally.

    Reply
  • Great article Chris. There is a lot of fear mongering and political hype in the comments from Harvey Norman management. Australian companies have been facing this issue for as long as I have been in business (a long time). We have always had cheap overseas competition, we have always had cheaper services from overseas. The grass is always greener on the other side.

    The information technology sector has been seeing this for years but no one has rushed to make it a political issue. Maybe we just don’t have enough money or clout. When we started eCorner we knew that there would be competition from overseas. We knew that hosting and data costs were cheaper in the USA and that USA providers did not have to pay GST or in fact any tax in Australia. So the cost of our products and services would probably be more expensive than the USA cheapies and there was that automatic 10% less with no GST.

    But there are other issues that we focused on like local support and service.

    So it is not just the retail sector and it is not a new phenomenon. It would be great to say we can have a market all to ourselves and not have competition or better be able to control the competition via tax laws. Where is that Yellow Brick Road?

    Reply
    • Ned
    • 20th September

    Chris

    you are misguided on the GST being a small problem – in the electrical area (computers, TVs, stereos etc) there is less than 10% margins, so trying to compete with companies avoiding the GST is the difference between profit and NO PROFIT.

    The sooner you realise that disadvantaging Australian businesses by giving outside businesses a 10% advantage is bad for Australia. Harvey Norman have wrecked many businesses by selling products illegally BELOW COST (predatory pricing) for the past couple of years – THAT is the place you should be complaining about as small businesses are the backbone of our economy.
    Rember, businesses exist to make a profit – the internet seems to only be a place for losses to be made (great for the consumer but deadly for the retailer)

    also remember Australia is a 1% country, if the international manufactuers dont make enough money here, they will pull out and take the servicing and parts with them.

    Reply
    • Michael S
    • 20th September

    Gerry must have shaky hands when he pours his milk into his and her coffee. Stop crying over spilt milk. Dj’s, Myers, HN’s arrogance got the better of them. Now they are playing catch up. Overpriced under serviced department stores are a thing of the past. The Australian consumer has developed and progressed and niche retailers will dominate the sector moving forward both offline and online.
    Its so obvious. The Aussie consumer is breaking up with you… as the old break up line goes ” gerry its not you its us (me) the consumer”

    Reply
    • JP
    • 20th September

    The truth is the GST is a consumption tax. By allowing Australians to consume without paying tax is undermining the whole system. Why not get rid of the GST? If it is not worth doing properly or saving, why do it at all?

    Overseas online sales in retail has a bigger impact that the 30% of 6 percent.

    We already allow our knowledge and intellectual talent to drain to the USA and Europe and now the government and the Chardonnay class want our entrepreneurs and business people to move overseas?

    We have just done the numbers about opening a new store .. cough cough …moving our online business to the USA. It is an awesome opportunity. I can sell at the same margin as in Australia, I can pay staff significantly lower wages, cheaper warehouse, cheaper freight and still sell to my existing customers and everyone can dodge the GST. The best bit is I am no longer collecting taxes for free for the Australian Government. We would not close our Australian operations (I have 3 companies) but as of 2013 we will not be investing anymore in Australia. We will wind back staff and killing any fledgling projects. Personally, as an Australian, I think it is a crappy thing to do but my options are eventually close the business or move overseas. I don’t have to close the business immediately but this is where Australian retail is heading. Just as manufacturing got run out of town, a big part of retail is moving offshore. My customers wont suffer, who it will affect is a whole part of the Australian channel, why buy from an Australian distributor, and the part of the economy/government that needs GST to survive.

    Large parts of the retail industry are not asking for a hand out. They are not asking for tariffs or extra duties. They just want a level playing field. My biggest competitor is not another local shop, it is overseas online websites. I pay taxes here, I employ Australians, I invest here, and my government has decided to create a whole new class of competitor to undercut me out of pure laziness.

    I do see the irony of someone like Chris Morley championing technology and online commerce and in the same breath stating that it would cost too much to collect 10% GST on purchases under $1000. Yeah building a website and payment system online to collect GST would be so hard. The government should give me the contract to collect the overseas GST, I’d partner up with Gerry and Kate, we’d build an awesome online system to collect GST, and we’d guaranteed the ATO 50% of the GST we collect as a royalty (we keep the rest ;-) to cover all those hundreds of millions of dollars of expenses ).

    You telling me no one here could build an efficient system to collect about a billion dollars a year from people already using a credit card to purchase product overseas online? Chris couldn’t do it, he knows theoretically it is not possible (so hard to squeeze those green $2 notes into the telex machine), but everyone else who runs a real business knows it could be done.

    Reply
    • Freddie
    • 20th September

    Great article Chris. Just some feedback though. Is it possible to have the text colour of your comments section change from light grey to black please? It would make it so much easier to read. If you could also bump up the text size a couple of points, that would also be wonderful.

    Thanks.

    Reply
    • Hi Freddie,

      As Chris is just a contributor to Power Retail, I thought I’d jump in to respond. We value all the feedback regarding our website from our readers, and I will be passing these suggestions to our design and development team for consideration.

      Thank you for taking the time to comment.

      Reply
    • Barry
    • 20th September

    Harvey Norman your years of screwing over suppliers with ridiculous back end rebates and then robbing your customers with massive retail floor margins has caught up with you. Your business model is outdated and it’s time for the boys club culture of pay for play to be overhauled and removed. Most other retailers have woken up to themselves and realised that if they work with their supply partners rather than bending them over they will get more support hence better sell through. We would all like to be making the margins we were 10 years ago but the reality is we can’t , I understand retail businesses have overheads but the heady days of your stores making 50% on the floor for electrical and 150% on furniture are gone. Gerry you always said competition is healthy, why not look at your overall business model and move it into the 21st century. Bigger footprints are not the go? this just increases your exposure. Less is more?? Bigger stores in centralised locations but less of them and give customers a reason to go to your stores. Quality products, Quality staff/service and the right price.

    Reply
    • peter
    • 20th September

    I love the use of statistics in a macro sense (less than 2% of retail is going overseas).

    How about stratifying the data and looking at the percentages by industry? Taking out things like Automobiles, Food, Dining, etc.

    Overseas online shopping has decimated retail in books, music, electronics, fashion, bike parts and a heap of other lower value industries.

    To see the true affect on Australian retail the online spend data needs to be specific to an industry.

    Until a true industry by industry report is published then the online barrow-pushers are no better and no more relevant than Harvey Norman.

    Reply
    • Simon
    • 20th September

    If you can collect GST on a packet of gum, you can collect GST on anything. Just too lazy to collect a few billion dollars.

    Reply
    • Jane Mac
    • 21st September

    Hi Peter,
    Whilst I understand that stratifying the data may give a more transparent picture of the industry data, surely the point is that only 2% of retail is going overseas regardless of what the product is?
    The bigger picture is that any retailer should invesigate how to broaden their business opportunities and embrace the online opportunity. GH has been slow on the uptake and is now seeking to lay “blame”
    A lesson to all of us in business, as in life, think laterally and openly, maximising what we have rather than bemoaning what we’ve lost.
    Great article Chris, keep them coming.

    Reply
      • peter
      • 23rd September

      Sorry Jane, but that is not the point I am making. I am saying that in some retail segments the impact of overseas purchases is far greater than the 2% that seems to always get quoted in a macro sense, which has had dire consequences for some of the largest retailers in those segments. Two examples are Borders in books and very recently Allans/Billy Hyde in music.

      How would you suggest these retailers broaden their opportunities as both had very good and quite comprehensive online offerings?

      And while everyone was quick to dismiss and ridicule Gerry Harvey for his comments about online neing a piddly amount of retailers business, we now have JB Hi Fi coming our and saying online sales account for only 1.6% of their revenue. This from one of the top websites when it comes to website traffic.

      So where are all the on-line barrow-pushers acknowledging that Gerry might have got it right after all?

      Reply
    • PM
    • 21st September

    Harvey Norman pulling out of Australia could be catastrophic for many smaller and overseas retailers, that rely on their stores to provide product demonstrations to customers that subsequently purchase online.
    I run a small camera store in Sydney CBD. My prices are normally on a par, if not better, than HN. As a specialist I’d like to think my product knowledge and service is better by far. I lose count of the number of times in a day customers come to the store, pick my brains, check out the cameras, then ask me to price-match an overseas online store. And when I can’t even discount (because I’m selling at invoice price and relying on back-end rebates already) they leave in disgust.
    The current retail model is dying in Australia, and Harvey Norman is the flag bearer for this model. The future of retail in this country relies on manufacturers (Canon, Panasonic, etc) opening their own stores, like Apple, which will be partly (perhaps largely) funded by their overseas parents. These companies will go from being wholesale, support and service-based, to purely retail.

    Reply
    • Very true (Barry 20th Sept). Pack up and go to HK and stop your whingeing HN! The millions that you have made to date and have had the luxury to spend is obsene in relation to your compaints. Step into reality and take a look at SMB’s. Can’t look that far down! Then suck it up!

      Reply
    • Jane Mac
    • 23rd September

    Peter, with regards to Borders and Allan’s, their decline was part of far greater macro causes than just online sales. Book sales in particular have been in decline since the 90’s, due in part to the evolution of internet as well as federal legislation around book publishing and distribution. In an effort to protect local industry, changes in Australian publishing made this industry unable to compete on a global scale. The music industry too has been declining – so looking at macro trends can help businesses see patterns and adjust accordingly.
    I would say your examples had poor online presence and antiquated retail strategies – Borders especially, the overheads on their bricks and mortar stores must have been astronomical!
    JB is in the top 10 for traffic – and I would suggest their low % of total sales is indicative of them not catering to even the most basic eCommerce needs. Site search for instance. If you search for “laptop”, your first findings are DVDs. At this stage the visitor leaves and becomes a customer elsewhere.
    Harvey’s ongoing attack on online retail and continual belittling of online sales will potentially lose them more market share given their inability to see a broader view.

    Reply
  • The article certainly received more attention and responses than perhaps I was prepared for – it is indicative how much eCommerce has grown and is still growing. The facts used regarding GST collection were from the Productivity Commission who said collecting the tax would cost more than it would receive and the Low Value Import Parcel Processing task force that stated significant improvements needed to occur before collecting GST on items as low as $30 would be financially worth while. Two government reports – both suggest we are some way off making the collection financially viable. Even if GST on overseas sales was collected if it were financially viable to do so – don’t then think its a level playing field, wages, rent, variable currencies, purchasing power, and supply chains differ greatly so achieving a level playing field wont happen.
    The statistics used were from the NAB Online Sales index to my knowledge they have food sales removed.
    Moving a major department store online is a difficult task – but one that is needed to compete as retail evolves; the consumer has more choice than ever before – and there are many reasons why retail is struggling currently.

    Reply
    • George Williams
    • 18th November

    Chris Morley… You are a tosser. Harvey norman is expensive nothing to do with gst. Your staff are shit with customers and you don’t know how to run a successful company anymore. Poor you. I will never by from Harvey Norman again.

    Reply

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