Harvey Norman hit by aggressive competition

May 3, 2012
The Age

Harvey Norman’s pre-tax profit for the first nine months of the financial year is down 25 per cent as sales continued to fall in the first quarter.

The retailer’s shares fell 4.8 per cent, or 10 cents, to $1.97.

The company said its profit before tax and minority interests for the nine months to March 31 was $204.8 million, down from $272.3 million in the previous corresponding period.

The result clearly shows the impact of aggressive competitor activity in the audio/video and information technology sector, Harvey Norman said.

Morningstar retail and media analyst Tim Montague-Jones said retailers in general had been hit by a combination of cyclical weakness and discounting. Short-term factors such as a mild summer had also taken their toll on sales of air-conditioning units, which had hurt Harvey Norman.

“On the other side of the ledger there is a structural change happening which these retailers aren’t talking about,” Mr Montague-Jones said. “We think there is a globalisation of commoditised products occurring.”

“Commoditised electronics products are increasingly being purchased online and consumers are looking for the cheapest branded products there,” he said.

Last week, JB Hi-Fi flagged weaker full-year net profit of between $100 million and $105 million, well below analysts’ estimates of $119 million, because of heavy discounting prevalent in the local retail electronics sector.

Sales retreat

Harvey Norman’s global like-for-like sales in the three months to March fell by 3.8 per cent, taking like-for-like sales in the nine months to March down 6.6 per cent.

Australian like-for-like sales in the three months to March were down 2.8 per cent, and down 6.9 per cent for the nine months to March.

Australian sales were impacted by falling prices for technology products, particularly flat-screen TVs, due to the high Australian dollar and tough competition.

That competition has increased since the collapse of Queensland’s WOW Sight and Sound and the scaling back of the Dick Smith Electronics business, Harvey Norman said.

Sales in April have continued the trend of the preceding three months, it said.

MorningStar’s Mr Montague-Jones said the trend towards shopping on line will continue to make life tough for many local retailers.

“A lot of those sales will go to the biggest global retailers which are increasingly the Amazons of the world,” said Mr Montague-Jones.

“The barriers for entry to retail have completely fallen, similar to what’s happened in the media industry,” he said, referring to the technology advances which have taken a wrecking ball to newspaper-focused business models.
AAP with Chris Zappone, BusinessDay

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