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Overseas expansion and domestic store upgrades

Harvey Norman executive chairman Gerry Harvey says the furniture and homewares giant is looking at entering new markets in Southeast Asia and expanding its premium store format in capital cities across Australia to maintain momentum in a “not great” retail climate.

The retailer on Friday announced plans to raise $174 million from investors to pay down debt and better position the company for a future retail recession, as it reported a 12.1 per cent increase in year-on-year sales from company-operated stores to $2.23 billion in FY19.

However, the co-founder and chair of the furniture chain stopped short of complaining about the current retail climate.

“I think ‘struggle’, ‘recession’ and ‘tough’ are pretty strong words. It’s not that bad,” Harvey told Inside Retail.

“It’s not great – trying to get last year’s figures is difficult – but we wouldn’t have made $574 million [reported profit before tax] if it were so terrible.”

Though Harvey Norman is largely sheltered from the rising cost of rent which is forcing many retailers to shrink their store networks, the retailer is leaving some of the sites it doesn’t own for this reason.

“I’ve just had a few rent increases that are horrendous,” Harvey said. “There are a couple sites we’ll be exiting because of that.”

“Looking” at Thailand and Vietnam

Wages were another hindrance to the company’s domestic growth in FY19. Sales grew 12.1 per cent year on year in the overseas markets where Harvey Norman operates, compared to a 12.1 per cent decline in revenue from Australian franchisees.

Harvey Norman has 90 international stores in New Zealand, Singapore, Malaysia, Ireland, Northern Ireland, Slovenia and Croatia. The New Zealand market, however, was an exception, with performance more similar to Australia.

“Australia and New Zealand have got very high standards of living,” Harvey said.

“The minimum wage in Australia is probably the highest in the world. Singapore, Malaysia and Croatia are way below Australia. The costs are less significant.”

This is at least part of the reason Harvey Norman plans to open more bricks-and-mortar presence in Malaysia, where the retailer will focus its expansion efforts in the near term.

“Our immediate focus is on Malaysia, where we think we can open a lot more shops in the next few years,” Harvey said.

“We’re also looking at whether we open in Thailand or Vietnam. That’s not going to happen tomorrow, but we do want to go to other countries.”

Bringing back the ‘wow’ factor

At home, the focus is on rolling out a new premium store format to more capital cities and upgrading the look and feel of stores across the network.

“We really want to do one in every state that looks like Auburn,” Harvey said about the retailer’s NSW flagship store, which opened last year.

“We did it on the basis that we could do the same in Melbourne and Brisbane and Perth. It’s on the to-do list. We’d love to have a really great signature shop in Melbourne, we haven’t got one.”

For the long-time retail executive, stores are the key to staying relevant, even as consumers spend more of their daily lives online.

“People are talking about how they’re always looking at a screen during the day and on their phone at night. They’re losing contact with people, and they’re starting to say, ‘I really have to go out into the world again’,” Harvey said.

“You’ve got people going more and more online, and at the same time, wanting to go more and more offline.”

Harvey Norman’s approach is to invest in making stores very appealing, offering a wide range of merchandise, providing wonderful service and the ‘wow’ factor, Harvey said.

“Most retailers right across the world have not been spending money on their shops, and then their shops start to look terrible,” he said.

“I think people are bored with online shopping and shopping centres, where they all look the same. They’d like to see something different.”

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