When Harvey Norman founder and Chairman Gerry Harvey launched a barrage of criticism of the “Internet” at the release of his most recent financial year results I couldn’t help reading on. In fact I was intrigued to read on.
Well there are a number of reasons. Firstly because having been labelled a “dinosaur” for his previous “Internet denial” e.g. online retail, and having now started an online store he now has real online experience, and yet still decries the potential of that mode of selling – I wanted to see why.
Secondly, he IS a very successful retail business founder and owner – he’s often epitomized as one of the great Australian retail success stories. And he is; although that journey may be coming to an end as reflected in the 31.6% drop in full year net profits for 2011/2012, and the 7% fall in revenue.
Thirdly, Gerry Harvey always says it like it is, he’s that kind of guy, and I always enjoy straight talk. This article was headlined “Gerry Harvey sick of internet 'spin'” and knew I’d been in for a good non-nonsense read – whether I agreed with it or not.
So I read on.
"You devote all this time to your omni-channel and integrated bloody ... and you go on with all this bullshit and the result is that it is 1 per cent of your sales. But if you don't go on with the bullshit you are out of fashion, you are not with-it."
He went on the say that retailers were “almost forced to come out with spin to plump up their online strategies to the market”. He's right there, let's admit it.
"I am reluctant to do it but I do it, because if I don't they label me a dinosaur. I'm out there labelled as a bloody dinosaur."
All good stuff and can’t agree more that it looks totally stupid for CEOs to be spruking “omnichannel” guff and especially when inside they think that the Internet and social are all BS. I do have some sympathy for them because if you followed the recent Australian Marketing Institute Marketing Conference 2012 you would have NOT seen a SINGLE tweet mention of "omnichannel" - the CEOs are caught up in already dead marketing jargon.
Now, here’s where Gerry Harvey and I disagree.
Only 1 per cent of your sales
While like the style of what Gerry says, the content concerns me:
...“when you check with Myer or David Jones, whoever, JB Hi-Fi, Good Guys, it’s nothing of their sales, somewhere between half and one-and-half per cent”, says Harvey
"I get out there and tell it like it is, but I get bloody castigated and pilloried."
Gerry's saying that online gets the media attention but the facts are that it is not doing anything significant.
Let's consider a few points of reference:
- National (Australian) retail sales are dropping – the trend is down;
- Department stores sales tumbled 10.2 per cent, making them the largest single contributor to the July retail sales fall, according to the Australian Bureau of Statistics. So-called 'other' retailing fall 2.8 per cent while clothing, footwear and personal accessory retailing slipped 0.9 per cent in the month;
- In contrast, online sales are growing at up to 25% per annum – the trend is up;
- Online purchasing rose by 24 per cent to a record $11.7 billion over the year to July, according to the National Australia Bank online sales index, released in August;
- Online sales accounted for 5.3 per cent of the retail market, up from 4.9 per cent in January, NAB said.
What does that mean?
It means that if Gerry Harvey and his cohorts are only seeing “half to 1 percent” of their sales in online then they are under-performing the current online market by at least 5 times. You might say that their product categories are just misaligned with the online market, but that's not what Kogan sees as they report explosive sales growth and record sales for the month of July 2012, and Appliances Online also reports explosive growth (from a low base).
So if your sales as a whole are dropping in a segment which is trending down, and your online sales are performing at 1/5 of the average in a segment growing at 24%, then what's the straight-talking prognosis? I'll leave that to you!
Place your bets please gentlemen
Now if you were to place your bets on online versus “the Gerry Harveys” which would you choose?
Jack Welch once said "If change is happening on the outside faster than on the inside the end is in sight".
On that basis some commentators have called for Gerry to sack himself, "not because he's too old or frail — he remains whip-smart — but because his initial success in building Harvey Norman blinds him from imagining a different future for it".
On face value that's a fair call.
Why are they researching and not buying from us?
In recent comments Gerry Harvey also observed that customers did do price and product research online.
"A lot of them [Harvey Norman franchisees] say people do research online and so the number of people that are researching our product online has jumped 25 per cent but our sales haven't jumped at all."
Does that suggest something to you? I don't get it, this man has been so successful, what can't he see?
I do research online in a store, If I like the people I ask for a price match. If I don't like them I just go to another store where I like the people AND they price match. If they don't price match then I don't buy from them - it's that simple.
Here's the problem, I'll spell it out. I know that the pimply-faced kid in Dick Smith is just trying to sell me the thing that gets him the highest commission, same in Harvey Norman in the mobile and computers. Sure, the guy in whitegoods is older and smoother but he's just flogging the aircon or washing machine with the highest commission as well. Officeworks is staffed to the lowest cost, and that's the only thing I'm interested in there. And all of these people are totally uninformed, which you can establish by spending 2 minutes on the Internet. Now you are the expert with 2 minutes investment - and these sales people and shop owners expect us to take them seriously - that they add value? That's a 1990s joke I'm afraid.
In fact the Masters CEO Don Stallings CEO of the Woolworths/Lowes Masters hardware chain says that an amazing 50% of customers do online price comparison while in-store. That’s a reality and it seems that Woolworths and Masters are playing into that reality, not fighting it. They unveiled their online store in June this year.
"MORE than half the visitors to Masters' hardware stores who are shopping for whitegoods are using a smartphone to check out competitors' prices before making a purchase".
“Customers have the power at their fingertips and Masters fully intends to cater to every customer, regardless of how, when and where they want to shop with us", said Stallings at the launch of their online store.
You'd think that Blind Freddy could see that Masters is on the right trajectory. They know people are researching in their stores. They build a strategy around that reality. They know the people researching will know more about the products and the alternatives than their staff. They know that they have to have an in-store price which is within a "warmth factor" of the prices found online.
So they have to win by trying to capture the customer's heart - build a connection, build a reason to like the staff as people, a reason for customers to want to take their kids with them to Masters and even pay a fraction more but enjoy the experience.
Of course, all this also requires a deep belief in the power of social technologies and especially social enterprise technologies to make a difference. If you don't believe that then prepare now to see your sales shrink in all channels.
Conclusion - place your bets now
So I'm placing my bet on those retailers who know that online might only be minuscule now, but who also understand that they have to adapt and who also appreciate that getting a disproportionately small share of a rapidly growing online segment is a big big red flashing light.
Jack Welsh's observation is a keen one, and closer to home Rohan Lund the new COO of Seven West Media Group was recently quoted in the Australian Financial Review saying that the thinks that the next 5 to 10 years will be transformational for Australian business.
"I think retailing will fundamentally change from what it is today".
Just to remind you of what Gerry thinks: "it’s nothing of their sales, somewhere between half and one-and-half per cent”.
Where are you placing your bet?
Are you comforted by the "it's only 1% argument"?
Gerry Harvey is not a dinosaur and I don't agree with him being portrayed as one, but he does have his head in the sand on this issue.
Related: Paul Wallbank just posted Goodbye to the electronics store
Related: The great online shopping debate — how the locals can win
Related: Customers queue overnight outside Topshop Sydney October 4, 2012
PS: Today (20 September, 2012) comScore released a study on U.S. smartphone behavior with respect to retail and shopping. The study found that 4 in every 5 smartphone users ... accessed retail content on their device in July. If this smartphone usage ratio applied in Australia then it would represent about 12m users! (Australia has a mobile penetration rate of 130% and 66% of mobiles are smartphones, and the 2nd highest smartphone penetration rate in the world after Singapore.)
PPS: Another proof point: a survey just released (26 September, 2012) by Choice, a consumer advocate group, identified Harvey Norman as having the lowest customer service rating among large Australian retailers with "pushy, poor service" and a "lack of product knowledge". Somewhat predictably Gerry Harvey responded that Choice has "got an agenda" and claimed "our service is fantastic". Oddly enough, those retailers that topped the list did not claim that the survey was poorly conducted or biased or had "an agenda"!
PPPS: Also reported today (26 September, 2012) that Dick Smith who rated a mention from me in the post as an example of a past-use-by-date retail model is to be sold for a song by its owners. For a business that a short time ago had 380 stores, and recently wrote down $420m, today's valuation of between $10m and $50m is a testament to the dangers of denial in retail today.