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The Harvey Norman Store’s Analysis Report


Abstract

The Harvey Norman store was opened in 1961 and stocked with electrical appliances. Harvey Norman is one of the successful franchise chain stores in Australia. Currently, the franchise has chain stores in eight countries, operating more than 230 stores in Australia, Slovenia, Ireland, Malaysia, Croatia, Northern Ireland, New Zealand, and Singapore.

The Harvey Norman store’s total sales decreased in the financial year 2010/11, leading to the closure of some stalls. This was because of the unfavorable global environment and weakening of the Australian dollar. Despite the hard economic times, the director of Harvey Norman holdings promises that the cash flow and balance sheet are good enough for the business to get into the future. The advent of technology and increased use of the internet has opened new markets for Harvey Norman holdings. Although it exposes its competition, scrutiny and comparison with overseas products, the executive officer considers online shopping as an opportunity to learn new market trends and foster innovativeness to the advantage of the franchise. Political, social, legal, and environmental factors affect the trading environment of t he company.

The vast representation of the franchise in various countries reduces the suppliers bargaining power and leverages customers’ bargaining power. In addition, the government’s legislations hinder the establishment of a new franchise to the advantage of the already established ones like the Harvey Norman holdings. Although Harvey Norman’s profits have decreased because of international forces, the franchise’s large property and resource base put it in a better position to compete sufficiently with other retailers.

Introduction

The first Harvey Norman retail store was opened in 1961 by Ian Norman and Gerald Harvey. The store was stocked with electrical appliances. Currently, the stores stock computer, furniture, electrical, bedding, and entertainment goods. By 1987, the Norman Ross chain, established by Alan Bond, had grown tremendously. It changed its name to Harvey Norman. Collapsing of the company established by Allan bond led to the closing of the Norman Ross chain. In 1990s, Harvey Norman holdings used the superstore format and ventured into furniture and computer markets. By 2000, the company had 100 stores in the country with many prospects of establishing more stores in other countries. With the aim of expanding its market and reaching more customers, its retail Australian retail chains include space furniture, Ariston appliances, and Domayne.

Analytical Framework

Economic

For the financial year 2010-11, Harvey Norman experienced a stalling pace in the retailing sector of its organization. During the first half of 2010, a tremendous reduction of the sales volume forced the company to reduce its dividends because of 36% decrease in earnings from its main retailing centres (Hankinson & Lomax 2006). When the company’s shares rose by 2%, investors failed to purchase the stocks leading to 6% decrease in the value of the shares. During the same financial year, the December’s retailing performance was very poor, with sales decreasing by 9% in one store (Jones, Shears, Hillier & Clarke-Hill 2002, p.849). The retail did not recover soon enough, with only a half per cent increase realized in three months. A report from Harvey Norman holdings indicated that pre-tax earnings flopped by 17.7% to $163.47 from $193 million during the first half of the year. The gross retail returns realized in Australia are associated with weakening of the Australian dollar, price deflation, and stiff competition in AV/IT category and computer hardware sector. These factors led to a decrease in the total earnings received from franchise ventures. An expatriate support team was required to assist in the management of the difficult environment the franchises were exposed to.

The fees collected from the franchise decreased during the second half of the year, thereby prompting the tactical support to increase its payments to enable the franchisees to compete effectively in local markets. Because of its strong economic background, Harvey Norman franchisees have continually grown in market shares in the main products. This retail are managed effectively to ensure that they tap in more customers. The economic support of the franchise system is based on the organization’s admirable property portfolio (ACCC 2002, p. 1). A report from the company indicates that by 31st December 2011, the consolidated property was valued at $2.12 billion. The Slovenia and Croatia retail had remarkably high sales in the first half of the year.

Technology

With the advent of technology and its adoption in many sectors of the society, Harvey Norman chose to seize the opportunity to venture into online retailing. In 2008, Gerry Harvey declared publicly that he was going to introduce GST to online sale. Gerry’s proposition has received tremendous support from 21 franchise stores including Just jeans, Myer, and David Jones among others.

According to Hankinson and Lomax (2006, p.102), online retail sales in Australia are expected to grow from $16.9 billion to $33.3 billion by 2015. Analysis of the Forrester report indicates that as the current growth of Australian online market grows, competition is expected to stiffen, characterized by factors like high customer expectations and competitive capacity.

Environment

Harvey and its associates realized that online shopping was likely to stall the growth of street retailing. In addition, online shopping is more complex because it requires provision of adequate knowledge and machinery to the customers. The internet has opened up avenues of education for online shoppers. The intense comparison carried out by online shoppers equips them with adequate knowledge to acquire the commodity that best suits their prescription. In addition, it has led to increased competition in the retail prices of the commodities (Aurand, Gorchels & Bishop 2005, p.161).

Political

Aggressive competition in the information technology sector is associated with the tremendous reduction of the company’s overall sales. Australian sales were affected by decrease in prices for technology machinery because of stiff currency competition. According to the company, if the sales continue decreasing, the company may be facing a decrease of 30% or more in net returns. For instance, the over 40% decrease in Profits at David Jones franchise can be attributed to the current structural changes taking place at the retail market. Some of the factors affecting retail trade include high capacity of the same kind of goods in various outlets, currency fluctuations, and change in the customers preferences are adversely affecting sales. Online marketing has enabled Harvey Norman to operate several channels. In addition, they can serve customers both in stores and online. This gives customers the freedom to choose the mode of interaction they would want to adopt.

Social

Australian retailers operating large stores have been slow in embracing the online strategy (Harris & De Chernatony 2001, p.442). Although franchisees like Myer, David Jones, and Harvey Norman have enjoyed the publicity brought about by online presence, their websites were designed to give information on the variety and specifications of the products they have in stock rather than pursue customers to make purchases. David Jones was the first Australian retailer to initiate online sales but the program failed because of low sales in 2003. This is because either the Australians were not ready to get into online shopping or the marketing package provided was not attractive enough to influence their purchasing decisions. Analysis indicates that slow growth in online shopping in Australia as compared to the United States and United Kingdom include Australia’s population is concentrated in urban centers that have easy access to shopping malls, better broadband infiltration in overseas markets, a variety of online products, efficient payment systems, and poor investment in e-commerce sector (Boyle 2002, p.257).

The sluggishness in the willingness of Australian retailers to invest in online facilities include: lack of understanding of its functionality and potential benefits of e-commerce. Other factors include negative perceptions toward the cost of setting up and sufficiently maintaining web facilities, limited access to broadband, insufficient skills to track online sales, lack of the ability to compete with other retailers online, and preconceived perception that they will lose the benefits associated with impulse buying (Hankinson & Lomax 2006, p.198).

Legal

The legal action taken against Harvey Norman’s misrepresentation during the sale of 3D television sets with false promises to the buyer that they could watch the AFL and NRL finals in the television sets led to decrease in sales (Hankinson & Lomax 2006, p.199). The ACCC chose to take a legal action against Harvey Norman because they considered the information provided to the customers during the promotion as deception. According to the ACCC, non-availability of 3D broadcasts in Australia led the company’s conduct to be considered as deceptive and misleading. Customer complaints and realization of deception by producers of certain products greatly affects sales, and acceptability of other products from the same company in the market. Despite various challenges leading to reduction in sales for the Harvey Norman, the company has remained successful (Binsardi & Ekwulugo 2003, p.322). In addition, although the operations of Harvey Norman have stalled because of harsh international climate, it still remains one of the successful growing companies in Australia for the last two decades and it could continue with its good financial record in the future.

Competitive Analysis

Bargaining Power of Suppliers

The aggressive competition among stationery suppliers influences reduction of prices by suppliers. For the Harvey Norman retailers, this is a positive sign of better performance because it ensures that they acquire their stock at the minimum price possible. Suppliers relying on bulk volumes of goods are susceptible to losses caused by producers’ reduction on volumes of goods produced. In addition, this reduces their bargaining power in the market, and the Harvey retailers can manipulate it to their advantage. For producers manufacturing stationery products stocked at Harvey Norman, they use similar inputs. This makes it convenient to mix inputs from various manufacturers, thus reducing the bargaining power of the supplier to the advantage of the Harvey Norman retailers.

Bargaining Power of Customers

When customers treasure certain products because of the satisfaction they achieve out of using them, they are likely to spend more on those products. This acts as a plus to Harvey Norman Holdings, which has dominated Australia’s retail market for more than five decades and has won the hearts of many customers from several countries. In addition, Harvey Norman enjoys a large customer base, thus reducing customers’ bargaining leverage. This helps the company in maintaining its reputation and domination in the market.

Government Sanctions Limiting Competition

Government policies dictate and regulate the accepted competition in the industry, thereby acting in the favor of the already established organizations and locks out upcoming companies. In addition, large industry size and availability of multiple franchise outlets in various countries enables Harvey Norman to prosper in the stock market without fraudulent deals (Cabera & La Nasa 2000, p.321).

Strong Distribution Network

Harvey Norman has established a strong network to necessitate distribution of goods in its various stores. Established networks reduce the cost of moving goods around and ensure that goods get to the end customer at the right time. Sufficient competition in the market requires high capital input. Although the company’s profits have decreased because of international market forces, it has a large resource base that allows it to compete sufficiently with other large retailers both within Australia and in other foreign countries where it has vested interests. Harvey Norman’s strong brands boost its standing in the market giving it a better leverage than other upcoming competitors.

Competences

Gerry Harvey has been in the retail business for the last five decades. His highly recognized business chains include Harvey Norman, Joyce Mayne, and Domayne. As at June 2011, its current property portfolio was valued at about $2.2 billion. Harvey Norman owns, occupies, leases, and develops property. Harvey Norman organization rarely delivers a fall in profits despite operating in a challenging business environment. According to the chairperson of the Harvey Norman holdings, the business has incurred losses four times for the five decades it has been operating. His reports indicate that almost 95% of the times it has been up and performing well because of the variety in the stocks provided as well as exploration of diverse markets by the chain stores established in different locations. Despite the poor trading conditions provided by global recession, the company has a good balance sheet and sufficient cash flow. The company’s debt to equity ratio is at 30.1% (Causon 2004, p.298).

Harvey Norman holdings has a competitive advantage in business through its strategic location of its stores. These locations predispose the stores to volumes of customers and enable them to have access to capital to enhance leases and purchases of the premises in question. Harvey Norman has built a valuable, inimitable rare and non-substitutable asset base through quality assurance of its products. Harvey Norman is a specialized retailer enforcing customers’ discretionary spending through offering sophisticated innovative product design mixes, outstanding service experiences, and unique store formats. Harvey Norman hold the advantage associated with FSAs (Flexible spending accounts). This is because of unique franchise networks and strategic locations. In addition, firms that have flexible spending accounts are liable to benefit from economies of scale in logistics, purchasing, marketing, buying, and distribution of goods in terms to cost of goods because they may get preferences from suppliers who sell goods in bulk. The advantages of the supply chain established by Harvey Norman franchise stores include excellent logistics, superior products, and exemplary merchandizing formats (Katle, 2012, p.64).

Strategies

Harvey Norman ensures that exemplary performance of the business is maintained through establishing company objectives and monitoring the implementation and execution of the set management rules, targets, and initiates to achieve the set objectives (Katle, 2012). In addition, compliance with regulations, external commitments, and ethical standards is a requirement to maintain the reputation of the organization.

In conclusion, Harvey Norman holding was established in 1961 as a retail store. Its expansion was as a result of success of the first retail store. Harvey Norman uses the franchise system in the management of the chain stores located within Australia. Harvey Norman Holdings specializes in computer, furniture, electrical, bedding, and entertainment goods (Harvey Norman Holdings Ltd, 2012, p.15). The overall sales are by the prevailing political climate, local, and international economic aspects like value of the dollar and recession, legal sanctions that include government policies and legal actions taken against the company. The social aspects that influence sales include adoption of technology and change of tastes and preferences in the customer population. Introduction of online shopping has led to increased sales and a large customer base. However, it has enhanced aggressive competition from overseas retailers, especially from United States and the United Kingdom. Some established competencies of the Harvey Norman holdings include a better bargaining power than their suppliers, low customer leverage, diversity in the location of their retail outlets, and outstanding innovativeness making their products unique. The exemplary performance of the Harvey Norman holdings is maintained through initiating good management strategies to ensure customer satisfaction and compliance to policies and regulations.

List of References

ACCC 2002, ACCC institutes against Harvey Norman Holdings Pty Ltd. Web.

Aurand, TW, Gorchels, L & Bishop, TR 2005, ‘Human resource management’s role in internal branding: an opportunity for cross-functional brand message synergy’, Journal of Product & Brand Management, vol.14, no.3, pp. 163-169.

Binsardi, A & Ekwulugo, F 2003, ‘International marketing of British education: research on the students’ perception and the UK market penetration’, Marketing Intelligence & Planning, vol. 21, no. 5, pp. 318-327.

Boyle, E 2002, ‘The failure of business format franchising in British forecourt retailing: a case study of the rebranding of Shell Retail’s forecourts’, International Journal of Retail & Distribution Management, vol. 30, no.5, pp. 251-263.

Cabera, F & La Nasa, M 2000, Understanding the college-choice process, New Directions for Institutional Research, Jossey Bass, San Francisco.

Causon, J 2004, ‘The internal brand: successful cultural change and employee empowerment’, Journal of Change Management, vol. 4, no.4, pp. 297-307.

Hankinson, P & Lomax, W 2006, ‘The effects of re-branding large UK charities on staff knowledge, attitudes and behavior’, Int. J. Nonprofit Volunt. Sect. Mark, vol. 11, pp. 193-207.

Harris, F & De Chernatony, L 2001, ‘Corporate branding and corporate brand performance’, European Journal of Marketing, vol. 35, no.3/4, pp. 441-456.

Harvey Norman Holdings Ltd. 2012, Harvey Norman Holdings Limited (HVN) – Financial and Strategic SWOT Analysis Review. Web.

Jones, P, Shears, P, Hillier, D & Clarke-Hill, C 2002, ‘Customer perceptions of services brands: a case study of J.D. Wetherspoons’, British Food Journal, vol.104, no.10, pp. 845-854.

Katle, P 2012, Harvey’s Norman reconciliation action plan. Web.

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