Harvey Norman Holdings Ltd.

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Harvey Norman Holdings Ltd.

A1 Richmond Road
Homebush West
New South Wales 2140
Telephone: (+61) 2-9201-6111
Fax: (+61) 2-9201-6250
Web site: http://www.harveynorman.com.au

Public Company
1982 as Caviton Ltd.
Employees: 2,228
Sales: A$1.16 billion ($653.3 billion)(2002)
Stock Exchanges: Australia
Ticker Symbol: HVN
NAIC: 533110 Owners and Lessors of Other Non-Financial Assets; 237210 Land Subdivision; 452111 Department Stores (Except Discount Department Stores); 522291 Consumer Lending

Harvey Norman Holdings Ltd. is one of Australias most successful retail groups, controlling an empire of more than 150 department stores. Nearly all of these stores, which emphasize computers, home entertainment equipment, and home appliances are operated on a unique franchise model, wherein Harvey Norman owns and leases the property and tightly controls the retail operations, taking licensing fees. The company operates under its main Harvey Norman store format and three newer formats: Space, a furniture store format patterned after Ikea stores; Domayne, an upscale store; and the fast-growing Rebel Sport chain, acquired in 2001. Most of the companys stores are located in its Australian base; however, with its coverage of the country more or less complete, the company has begun looking towards international expansion to drive its growth in the new century. As such, Harvey Norman has established a strong presence in New Zealand, with some 20 stores, and in South Africa, with five stores. The company has especially targeted the nearby Southeast Asian market, with its initial launch in Singapore, through its acquisition of control of that countrys Pertama retail group in 2000, giving it 14 stores there. The company also plans to move into Malaysia in 2003. At the same time, Harvey Norman has targeted growth in both Eastern and Western Europe, beginning with Slovenia and Ireland, opening stores in both countries in 2002. Harvey Norman is controlled by chairman Gerald Harvey, Australias first retail billionaire, who co-founded the company in 2002.

Second-Time Retail Success in the 1980s

Harvey Norman was not the first retail success for company co-founders Gerald Harvey and Ian Norman. The pair had met up in the early 1960s, launching the Norman Ross retail chain in 1961. Harvey, the motor for the later Harvey Norman retail empire, had originally intended to go into farming and had attended agricultural college on a scholarship in the 1950s. However, when his family ran into financial difficulties, Norman switched schools to study economics and accountancy at the University of New South Wales, which enabled him to work part-time.

After leaving school, Harvey took a job selling vacuum cleaners door-to-door and discovered that he had a talent for sales, quickly becoming the top seller in the company he worked for. Harvey decided to go into the retail business for himself and turned to his friend Ian Norman, who had inherited some £700 after his fathers death. The pair opened their first store, called Harvey Norman, in 1961.

The store specialized in electrical goods and appliances, and by 1962 Harvey and Norman began looking to expand. The pair came in contact with retailer Keith Lord, who was looking to expand his own retail group, and opened a second store. Yet Lord did not want the new store to be named after Harveyand Harvey did not want the store to be named after Lord. Instead, the group kept Normans name and added that of its store manager, forming the basis of the Norman Ross retail group.

By the end of the 1970s, Norman Ross had grown into one of the largest appliance retail chains in the New South Wales and Queensland regions, with 42 stores and sales of more than A$240 million. At the beginning of the 1980s, however, Norman Ross caught the attention of two suitors, Grace Bros, and Alan Bond, the latter in the process of building his highly diversifiedand ultimately unstablebusiness empire. A bidding war ensued and resulted in Harvey and Norman selling their stake, a combined 40 percent of the company, to Grace Bros, in 1982.

Harvey and Norman remained with Norman Ross, directing the company in exchange for a share of the profits. However, the angered Bond turned to Grace Bros, and succeeded in convincing company head Michael Grace to sell him Norman Ross just three weeks after Grace had bought the retailer. Not long after that purchase, Harvey gave an interview on the radio during which he told the Daily Telegraph: I said I wished Bond would pack up his marbles and go back to Perth. Then I got a telegram telling me I was sacked.

Both Harvey and Norman were given notice and a six-month pay parachute. Yet neither had lost the taste for retailing, and one day Harvey noticed a newly built shopping center for sale in Auburn, outside of Sydney. Harvey and Norman decided to buy the complex, paying A$3 million, and launched a new store they named Harvey Norman. The partners formed a new company, called Caviton Ltd., for the venture.

Initially, Harvey and Norman had planned to open just a single store, with Harvey taking the active role and Norman acting more or less as the companys silent partner. Yet the success of the stores discount formula led the company to open a new store and then a number of others. By 1987, the company had grown sufficiently to make its public offering. The newly listed company changed its name, to Harvey Norman, that year. Not long after that, the empire built up by Alan Bond during the 1980s collapsed, and the Norman Ross chain was shut down.

Category Killer to Retail Leader in the 1990s

Harvey Normans growth was to take off in the 1990s, when the company introduced a new retail category killer concept brought over from the United Statesthe superstore. In initiating its new retail formula, Harvey Norman took the risk on a relatively small market, that of computer sales.

The risk paid off, and the companys computer superstores soon dominated that retail market. Meanwhile the companys main Harvey Norman stores continued to broaden their product range, adopting a department store formula based on home appliances and furnishings.

Another strong factor in the companys success was its uniqueand tightly controlledfranchise formula. Harvey Norman owned the properties for their franchised store locations, enabling the company to generate multiple revenue streamsthrough site leases, licensing fees, as well as department-by-department purchasing feesfrom a single store. The franchise concept worked so well for the company that it owned only one store of its growing retail group.

Harvey attempted to replicate his success in computers with a venture into another retail branch, that of toys and nursery products, in 1993. Yet the format never took off, and after suffering three years of losses, the company shut down that operation.

In the meantime, the boom in computer sales in the early to mid-1990s placed Harvey Norman and its early commitment to that market ahead of the pack. By the mid-1990s, the companys revenues had shot beyond the A$l billion mark. The company continued its growth drive into the second half of the decade, reaching 60 storesincluding 59 franchisesby 1997, for A$l .2 billion in revenues. In that year, Harvey Norman made its first international move, opening its first store in New Zealand. The success of that site led the company to step up its ambitions in that country, with plans to open as many as 12 stores there by decades end. At the same time, the company set a goal of reaching 100 stores for its entire retail network by 2000.

Until late in the decade, most of the companys growth had come organically, through property purchases and new franchise developments. As Gerry Harvey told the Daily Telegraph, Usually if we wanted a store somewhere we would just open one of our own. In 1998, however, Harvey Norman made its first acquisition, buying up the Joyce Mayne chain of furniture and appliance stores. The purchase, at a cost of A$45 million, added annual sales of A$70 million from seven stores in Sydney, Newcastle, and along Australias central coast. By the end of that year, the Harvey Norman network had topped 70 stores.

The ebullient Harvey, who had by now entered Australian history as the nations first retail billionaire, continued to seek expansion outlets for the company. In 1999, it launched a new phone-order wine club, putting it in direct competition with that markets leaders, Fosters and Coles Myers.

Key Dates:

Gerry Harvey and Ian Norman sell their stake in the Norman Ross retail chain and set up a new store under the Harvey Norman name.
Harvey Norman goes public on the Australian Stock Exchange.
Harvey Norman launches a computer superstore.
The company opens its first store in New Zealand.
The Joyce Mayne furniture and appliance chain and Archie Martin Vox stores are acquired.
A joint-venture to enter the Singapore market is founded.
The company acquires the Electric City chain and rebrands all Singapore stores as Harvey Norman; majority control of Rebel Sport retail chain is gained.
The companys first store in Slovenia opens.
Harvey Norman opens its first store in Malaysia and first two stores in Ireland.

The company also kept an eye out for new expansion opportunities for its core retail network. In 1998, it had acquired seven Archie Martin Vox stores, based in Western Australia, paying A$4 million. By 2000, the companys network had topped 100 stores. In that year, the company returned to the Vox network, which had lost money through most of the 1990s, picking up a further 22 stores from owner Brierly Investments (later BIL). The company began converting its new stores to the Harvey Norman format, boosting its total store network to 125 stores.

Going Overseas for Growth in the New Century

Harvey Norman expected to added as many as 40 more stores in Australia and an additional 15 new stores in New Zealand in the early years of the new century. The company also broadened its retail offering, launching a new Space furniture store format, patterned after Ikea stores, and the upscale Domayne store format, which opened in Sydney. Yet by the beginning of the 2000s, the company had already recognized that its future growth in Australia was limited and achieving the kind of double-digit growth that had marked the 1990s would not be possible.

Instead, the company began to look abroad, casting its eyes on both the nearby Southeast Asian market and on more distant Eastern and Western European markets. In Eastern Europe, the company targeted Slovenia, in part as a testing ground for further development in the region but also for that countrys proximity to Italy and Austria, expecting to attract shoppers from both countries looking for the lower prices available in Slovenia.

In the west, the company naturally looked toward England and began plans to open a flagship store in London in 2000. Meanwhile, the company, which had earmarked some £190 ($300 million) for its international expansion effort, also looked toward an entry into Singapore, which would then give it access to neighboring Malaysia. The companys entry into Singapore came in 1999, through a 6040 joint venture with that countrys Ossia International. The joint venture, Harvey Norman Singapore, then acquired a 50.6 percent stake in retail chain Pertama in October 1999.

Singapore quickly became the companys fastest-growing international market. In 2001, the company acquired the Electric City chain, which, together with its existing stores, were rebranded under the Harvey Norman name that year. The company pinned much of its future growth hopes on its Asian entry, with expectations that Asian revenues would top its domestic revenues in the new century. In 2003, the company began plans to open its first store in Malaysia, which was expected to open by that year.

Back home, the company found another growth target when it moved to acquire control of struggling sporting goods chain Rebel Sport Ltd. With new management in place, the publicly listed Rebel Sport soon resumed its growth, regaining profitability by 2002. That year marked the long-postponed opening of the companys first Slovenia store. Despite losses continuing into 2003, the company remained committed to testing its retail format in the Eastern European region. In the meantime, the company prepared its entry into a new market, that of Ireland, where it scheduled two store openings for mid-2003.

Despite a sagging stock price, due in part to the uncertain international retail climate, Harvey Norman remained a true Australian success story and one of its strongest growing companies in the previous two decades. Gerry Harvey, who vowed to remain at the head of the company for the rest of his life, was himself widely regarded as Australias greatest retailer. With plans to duplicate its success on an international scale, including a possible entry into the United States in the 2000s, Harvey Norman looked forward to future expansion.

Principal Subsidiaries

Achiever Computers Pty Ltd; Bundall Computers Pty Limited; Cairncom Pty Limited; Calardu Pty Limited; Cannapp Pty Limited; Cropp Pty Limited; Daldere Pty Limited; Geraldcom Pty Limited; Hardly Normal Limited; Hardly Normal Pty Limited; Harvey Cellars Pty Limited; Harvey Liquor Pty Limited; Harvey Norman Europe d.o.o.; Harvey Norman Gamezone Pty Limited; Harvey Norman Singapore Pte Limited; Harvey Norman Stores (N.Z.) Pty Limited; Home Mart Furniture Pty Limited; J.M. Plant & Equipment Hire Pty Limited; Joyce Mayne Penrith Pty Limited; Lesandu Pty Limited; Network Consumer Finance (N.Z.) Limited; Network Consumer Finance Pty Limited; P & E Sale Pty Limited; Space Furniture Limited; Tisara Pty Limited.

Principal Competitors

Westel Group Ltd.; Coles Myer Ltd.; Woolworths Ltd.; David Jones Ltd.; James Richardson Corporation Proprietory Ltd.; Strathfield Group Ltd.

Further Reading

Barlow, Robert, Case Study: Harvey Norman, Business Studies Network, 2002.

Bawden, Tania, Harvey Hunts Offshore for Retail Expansion, The Advertiser, September 14, 2002, p. 54.

Gerry Harvey Admits Slovenia Is Quite a Risk, Sydney Morning Herald, October 10, 2002.

Gosnell, Peter, Reaping Success, Advertiser, April 10, 2002, p. 34.

Koch, David, Interview: Gerry Harvey, Sunday Sunrise, October 13, 2002.

Lovett, Ian, The Golden Touch Extends to a Rebel, Daily Telegraph, Marchb 13, 2003, p. 43.

Maverick Buys $4m of Battered Own Stock, Courier-Mail, March 15, 2003, p. 74.

M.L. Cohen