Billionaire retail mogul Gerry Harvey says businesses are justified in passing on cost increases through higher prices to maintain their profit margins and prevent bankruptcies, despite the Reserve Bank warning it could lead to higher inflation.
Key points:
- Harvey Norman chairman Gerry Harvey says businesses are well within their rights to pass on higher costs to customers if they want to stay afloat
- The retail giant saw a 7.8 per cent decline in retail sales since July 1 as higher interest rates deter spending
- Mr Harvey says the company’s Black Friday sales were on par with last year’s despite its website issues
The comments made by the chairman of Harvey Norman follow the furniture and electrical retail giant reporting a near-8 per cent decline in sales since July 1, as higher interest rates deter consumers from spending.
Earlier this month, the Reserve Bank of Australia released the minutes of its November interest rate meeting, where it increased the cash rate to a 12-year high of 4.35 per cent over concerns that businesses were passing on higher inflation costs to consumers, which would contribute to higher inflation if sustained.
But in a sit-down interview with The Business after the retailer’s annual general meeting on Wednesday, Mr Harvey said businesses were within their rights to pass on higher costs to customers in the form of higher prices or else they would go bankrupt.
“The big problem you’ve got for business going forward in the next 12 months is that I think you’re possibly going to see more bankruptcies than you’ve seen for a very long time, because you’ve got a lot of businesses out there at the moment under extreme pressure,” he told The Business.
“It’s pretty tight out there for a lot of businesses now. If they don’t put up their prices, they don’t survive.”
He argued that higher labour costs were one of the biggest drains affecting the bottom line of businesses, but said there was an upside, even if some “give up because the costs are beating you”.
“The good part about that, if there is a good part to it, is that it does bring inflation down and creates employment and all those sorts of things, which is possibly what’s going to happen,” he said.
Despite signs of falling input costs, such as wholesale electricity and fuel, in the monthly October inflation data released by the Australian Bureau of Statistics on Wednesday, Mr Harvey said they remain hard to predict.
Should those input prices fall, he said, it would take retail prices much longer to fall in comparison to how quickly retailers could pass on price rises.
In the 2023 financial year, Harvey Norman recorded a pre-tax profit of $680.2 million and a net profit of $546.8 million. Both results were down more than 20 per cent compared to the previous financial year.
After its record profits in the 2021 financial year, the retail giant bowed to public pressure and repaid $6 million of the estimated $22 million it received from the JobKeeper wage subsidies. The company has still not disclosed why it returned the funds.
Higher rates = lower sales
Prior to the retail giant’s AGM in Sydney, a financial update released to the ASX showed sales for the group — which includes the Harvey Norman, Domayne and Joyce Mayne brands — were down by 7.8 per cent since the start of the current financial year, and its comparable sales dropped by 8.7 per cent.
Between July 1 and November 25, Harvey Norman’s aggregate sales in Australia fell by 11.9 per cent.
The retailer however said its sales benefited from the appreciation of the euro, British pound and New Zealand dollar.
The decline in Harvey Norman’s sales followed weaker retail trade figures released by the Australian Bureau of Statistics on Tuesday, showing a 0.2 per cent fall in October as higher interest rates ward off consumer spending.
The figures however did not account for the most recent Black Friday-Cyber Monday sales bonanza, with retailers expecting “record” sales over the period ahead of a “penny-pinching” Christmas.
Despite lower sales between July and October, Mr Harvey said the retailer’s sales during November were “much better than I thought it’d be”.
“Our sales on Black Friday were like the same as last year, near enough, [but] if we’re down 10, 15, 20 per cent in the stores in the months leading up to that, why were the figures so good?” he told The Business.
“That’s not Harvey Norman, that’s every retailer, I would assume … so why did people then suddenly decide ‘I’m going to spend’?”
That uptick in sales during November, he said, is clear evidence that people are more price conscious in the current environment of high interest rates and are actively waiting for sales before spending.
Its November sales boost came despite Harvey Norman’s website experiencing issues during its Black Friday sales.
When asked about his support of former Optus CEO Kelly Bayer Rosmarin in the wake of the telco’s national outage, Mr Harvey replied that Harvey Norman’s website “went down” at 8am until 8pm on November 24, which affected its online sales.
Before Mr Harvey could continue, a media representative for the company interrupted and clarified that Mr Harvey was mistaken, saying the site never “went down”, but instead experienced a sudden increase in traffic.
A statement provided to the ABC late on Wednesday afternoon from a Harvey Norman spokesperson said that “adjustments had to be made to manage the huge growth in the volume of traffic to the site”.
On the day of the Black Friday sales event, Mr Harvey told ABC Radio Melbourne on the afternoon of November 24 that its website “problems” had cost them “around $1 million in turnover” by lunchtime.
“It’s operating, but it’s not operating very well,” he told ABC Radio Melbourne at the time.
“Our sales are up, but only marginally on last year, but it [the website] worked fine last year … it’s under a heavy load, but it still should have worked.
“It’s technology, and every now and again this is going to happen, I guess.”
In defence of Optus and CEOs
Returning to his vocal support of ex-Optus boss Ms Bayer Rosmarin — mainly broadcast through a radio commercial he personally recorded — Mr Harvey told The Business that the telco’s outage was an “unlucky” situation that “could happen to any company”.
“If it happens regularly … you might argue [it’s not your fault] because they haven’t employed the right people, but the people that are CEOs are not the IT specialists, they’re not running that IT division,” he said.
“And to crucify those sorts of people, I think it’s just unfair, and that’s why I did that ad saying ‘just be careful, your turn might be next.'”
Mr Harvey said that the Optus experience would provide lessons for Australian companies — and executives in particular — about how to handle similar problems in the future.
“If you’re a CEO, you’re very scared to say anything sometimes, because then you’ve got a board that comes back and attacks you later,” he told The Business.
“So you’re being attacked by the media, you’re being attacked by the politicians, then your own board attacks you.
“It’s a pretty difficult job.”
But a company’s board is not the only one who can deliver an attack — Harvey Norman’s shareholders delivered a blunt message to the retailer at its annual general meeting by voting down its executive remuneration report.
The report received an 81.83 per cent protest vote from shareholders, delivering a first strike against the company and putting its board on notice to improve its performance or risk being spilled should there be a second strike at next year’s AGM.
Wednesday’s protest vote was not the first strike Harvey Norman’s shareholders have delivered against the board, however Mr Harvey still criticised the outcome and singled out proxy advisor group, the Australian Shareholders Association, during the AGM.
Mr Harvey and the ASA have a tumultuous history, but a spokesperson for the ASA told the ABC on Wednesday night that the company should have more “respectful” engagement with its retail shareholders.
The protest vote against Harvey Norman was one of the largest ever recorded in Australian corporate history, and comes after Qantas shareholders delivered a protest vote of 82.98 per cent against the airline’s remuneration report at its AGM on November 3.
Mr Harvey was also re-elected as a director of the company on Wednesday, with more than 94 per cent of votes cast in favour of his reappointment.