Harvey's not for going
THE FRIDAY INTERVIEW:Gerry Harvey, founder, Harvey Norman
GERRY HARVEY, the famous Australian retailing magnate, has always been a man who prefers to call a spade a bloody shovel. And these days nothing seems to animate the swaggering salesman from Down Under more than the plight of the Irish economy.
Two years before the full horror of the EU-IMF bailout lurched into view, the billionaire executive chairman of the bulky goods giant Harvey Norman was busy sounding off about the untimely demise of the Celtic Tiger, branding the recession-hit Republic a “basket case”, and likening the savage market slump to the “return of the potato famine”.
At a recent annual general meeting, the 71-year old business icon – judged Australia’s most influential retailer by Forbesmagazine – bemoaned the company’s $50 million loss-making Irish division, which employs around 850 people, as an “unsolvable problem” and lamented, “I don’t know how we got ourselves into this much trouble”.
Yet on a showery summer’s day in Sydney’s industrial fringe, where Harvey Norman’s global operations are headquartered, the man who started out hawking vacuum cleaners from door to door, and who now commands a $1.6 billion fortune, offers a more tempered assessment. “Ireland’s not catastrophic for us,” he explains, in a lengthy Aussie drawl, “it’s just a pain in the arse.”
Harvey is a long-established media darling in Australia. In this fiercely egalitarian society – where “bastard” and “ratbag” are seen as terms of endearment – his straight-talking, regular bloke image plays to a wide audience and he is rarely off the airwaves. Even the politicians applaud him. Last August, shadow treasurer Joe Hockey dubbed him an “open, honest and fair dinkum guy”.
But many would argue his candour shows signs of becoming a liability. In November 2008, Harvey sparked a storm of controversy after he described homeless people as “no-hopers” on whom charity was “just wasted”. He later insisted he had been “misunderstood” and protested that he had “given heaps of money to bloody charity”. At the same time as this domestic storm was raging, Harvey was under fire over the comments made at an agm comparing the Irish financial crisis to the return of the Famine.
When reminded of this, Harvey’s tanned face, heavily creased with laughter lines, crumples briefly as he admits he “made the mistake of forgetting for a moment that the world is one place, and it didn’t strike me at the time, and I said that, and it hit the Irish press, and I thought, ‘Holy shit’,” and his head sinks into his hands. “It was like a blow from outer field.”
Harvey was flabbergasted at the furious response, recalling the many “horrible letters” he received. “Are they really that sensitive? I just said it as a line, Ireland’s bloody terrible, it’s like the potato famine has come back,” he chuckles sheepishly. “But I’m not suggesting the potato famine exists in Ireland. There is no similarity, and blind Freddy knows there is no similarity.”
Harvey’s remorse is convincing, but it also has a hard business edge. Despite rising shareholder anger at the group’s strategy in Ireland, Harvey Norman’s top brass has repeatedly insisted the company will not cut and run. Instead it’s adopting a last-man standing policy, in the expectation that rival retailers will be forced to the wall by the combined pressure of the ferocious economic conditions and cutthroat competition from Harvey Norman, which operates 14 stores in the Republic and a further two in Northern Ireland.
Harvey concedes the decision to remain open is a “day-by-day proposition”. Dressed casually in an open-necked shirt and grey slacks, the retail tycoon airily dismisses media speculation of a planned exit. “It’s not getting any better, but why set a timeline? There’s no need if you discuss it every month. When you leave this meeting, in three minutes we could say, we just had a board meeting and have decided to close,” he says, with a laconic smile.
However, market analysts argue the company is effectively shackled to its loss-making Irish division because of the costs associated with severing 16 long-term leases. The discount furnishing and electrical goods chain has achieved only one profitable year in its seven years of trading in the Republic. For a company that maintains a rock-solid reputation for growth – it is Australia’s leading non-food retailer – this is an uncharacteristically dismal performance.
While Harvey acknowledges the leases are his “biggest gripe”, he denies the “crook rent” has forced his hand. That “doesn’t matter” he shrugs. “You just pay the leases. It would cost us half as much as what we’re losing.”
Renowned in the industry for his approachability, Harvey runs through the arithmetic. Grabbing a sheaf of paper from one of the piles that clutter his desk, he starts scribbling down figures, totting up the damage of an abrupt closure. The bill comes to $375 million. “So you would make a provision in your accounts for $375 million over a 15-year time span,” he explains, “But in actual fact you’d be paying out around $25 million a year over that time . . . so the accounting treatment is a $375 million loss, but the actual situation is quite different.”
He gallops on. “So say you lose $25 million every year on the rent, OK, and then you’re losing another $25 million on the trading, OK? Now you’ve got to look at the odds and say, what are the odds I’m going to lose that every year?” After some time spent costing the next 15 years of trading in Ireland, he leans back in his chair, throws the pen down and says, “The logic of it is that if we’re a good enough retailer we have to break square, we have to, before rent, I’m talking about . . . if we’re there breaking square and losing $25 million a year, there’s no difference, you might as well stay, mightn’t you? And $25 million might only be 5 per cent of our profit. It was 10 per cent of our profit – you know it’s not life threatening.”
Others have speculated that a quick exit would damage the Harvey Norman brand, associating the chain with failure when its image hinges on a brash self-confidence. As in Ireland, the “Go Harvey Go” slogan is virtually unavoidable in Australia, but the wall-to-wall advertising costs in its home market are shouldered by over 300 franchisees, each of whom operates one of the 195-plus stores, or a separate department (from bedding to furniture to computers) within a store. It’s a unique structure and is widely credited for the retailer’s phenomenal success.
Harvey, who has been the face of the brand since he founded the business with the reclusive Ian Norman in 1982, insists the chain is a “market leader” in Ireland. “So your brand is worth something, you would think, but it’s not worth anything if you can’t make any money.” As Ireland sinks deeper into the mire, investors worry the expectation of a turnaround in the Irish division is like waiting for Godot.
So does Australia’s retail guru believe the bailout represents a good deal for the State’s battered economy? “Well I’m just going to sit and watch because my view on that is not worth having,” he says in a display of uncharacteristic reserve. But he soon warms to the theme. Lounging in a leather chair beside a window offering a rather dreary view over an industrial park – albeit one with eucalyptus trees and a prolific parrot population – Harvey, blue eyes twinkling, claims he understands why “a lot of people” believe defaulting on the debt is a “good” option. “They’d say we’ll just write it off, we’re not going to pay it. Start again, bugger the euro. And we’ll be forgiven in time, and if we run our economy right and get it all OK, somewhere in the future people will say, they did that, the dirty buggers, but they’re good now. So you’ll be a black mark, but the black mark gets smaller as the years go on.”
While Harvey refuses to speculate on whether a default offers the quickest path back to prosperity, he cautions against “total austerity”, arguing “there’s got to be some middle ground”.
Harvey is no stranger to hard times. The company’s headquarters are located close to the motorway leading up to the Blue Mountains. This is where his parents and two siblings were forced to live in a garage roughly the same size as his moderately proportioned office after the family’s home was razed to the ground by a bushfire. “It was poverty at the extreme,” he once said.
Yet despite his now vast wealth, which includes 900 horses and five stud farms, and his advancing years, Harvey persists with the day job. Even though his wife of 20 years, Katie Page, heads up the retailing empire as managing director, Harvey remains at its core, voicing his exasperation at reports of poor service in the Irish stores. “Yeah, that’s got me stuffed, because the feedback that I get, right, is that the suppliers are saying that we’re the best operators and we have got the best staff – and I’ve heard this thing about the service is crap in Harvey Norman, and I think to myself, there’s every reason in the world to have the best service in the world . . . We’ve got to survive in this country.”
Then in true larrikin spirit he leans forward and with a conspiratorial chuckle says, “As a retailer, one of my greatest joys if I ever retire would be to go and tell people to go and get nicked, right? Because you’ve been so subservient all your life, right, and sometimes, you’re having a go at me and I’m being nice to you for an hour, and in the end you still hate me just as much.”
“Aaaah,” he drawls. “Go and get nicked. F**k off. But then again I’d probably never do that because it’s in my nature not to be like that. Because I’ve got to 71 years and I’ve always been, I’ll keep trying, I’ll win you over, somehow, right?”
IN HIS OWN WORDS 'A FAIR DINKUM GUY'
“So your brand is worth something, you would think, but it’s not worth anything if you can’t make any money
“I’ve heard this thing about the service is crap in Harvey Norman, and I think to myself, there’s every reason in the world to have the best service in the world . . . We’ve got to survive in this country
“As a retailer, one of my greatest joys if I ever retire would be to go and tell people to go and get nicked, right? Because you’ve been so subservient all your life, and sometimes, you’re having a go at me and I’m being nice to you for an hour, and in the end you still hate me just as much . . . But then again I’d probably never do that because it’s in my nature not to be like that . . . I’ll win you over
ON THE RECORD
Family: Married to Katie Page, managing director of Harvey Norman. He has two sons and two daughters and four grandchildren.
Interests: Family, breeding and racing thoroughbred horses, golf, tennis, gardening, environmental issues, breeding Wagyu cattle and assisting those less fortunate than himself.
Home: Lives in the semi-rural suburb of Dural, 35km northwest of Sydney.
What might surprise: He first went into business to raise enough capital to buy a farm.