Gerry Harvey, pictured on the front page of the Financial Review with his latest racehorse purchase earlier this week, is once again reminding us that the federal government must come to his aid to protect his company from piratical, overseas based, internet retailers.
The executive chairman and major shareholder of Harvey Norman, and one of Australia’s great success stories in retailing, needs to be reminded of a few harsh facts about capitalism. The most pertinent being 'innovate or die'.
Harvey came to the public company sphere after a successful stint with Norman Ross. He quickly built a company that survived the ’87 crash and became a darling of growth stock investors of the past 20 years. He brought innovation to speciality retailing and prospered, but now the business flounders.
Katie Page, his wife and co-director, could have done worse than put a copy of Walter Isaacson’s biography of Steve Jobs under Gerry’s Christmas tree. Separated in age but walking a similar path of business building beginning in the 1980s, the two showed similar entrepreneurial drive and innovation. Jobs in computers, music, telephony and film; and Harvey in speciality franchised domestic retailing. Both had a keen eye for the customer. The difference between them is that Jobs constantly innovated, turning a computer company into a phone company and into a music retailer. He constantly tossed out old business models when they became redundant, never failing to stay one step ahead of consumer preference. It is hard to imagine Steve Jobs ever going cap in hand to the White House seeking protection from competition. He thrived on competition, the rougher the better. Just ask Bill Gates.
Harvey, a constant critic of Australian public company chief executives, has not added value for many years. The Harvey Norman stock price, now around $1.92, is the same as it was in 1998. The board, led by Harvey, has not added any value in almost 14 years. He should blush to be going, hand out, with begging bowl to the federal government.
His comments this week implying that the share price torpor is not important, as the company has increased enormously in size, cannot be taken seriously. Professional fund managers and mum and dad investors risk their capital for return – to see the share price go up and to buy an increasing income stream in dividends. No one cares about the growth in market capitalisation if the share price is going nowhere. This is not wealth creation.
We are going through a once in a lifetime change in our capital markets. It is the epitome of Joseph Schumpeter’s gale of creative destruction, which is the essence of capitalism. Businesses with old fashioned models such as Fletcher Jones, Angus & Robertson and Borders have been swept away. Other retailers like Myer, David Jones and Billabong are taking a hammering. The capital is flowing away from them to other businesses on the cusp of the next wave. Gerry should have sniffed the wind a lot earlier. Six years ago he was on record as saying the internet would never have a significant impact on his business. He got it wrong, simple as that, and continued a business model based on over-the-counter retailing of flat screen TVs, mobile phones and appliances.
Capitalism thrives on destruction of old, inefficient businesses and the continual availability of capital to new, better, more innovative business models. This creative destruction that is now impacting on Australian retailers and causing Gerry so much grief is often driven in societies like Australia and the United States by the consumer. In seeking protection from the federal government, Gerry wants to socialise his losses but he never suggested that Harvey Norman should socialise its profits when the company was in its hey day.
Get over it Gerry. Big boy’s game, big boy’s rules. You have plenty of choices. Sell your racehorses and go back to concentrating on your business or admit you missed the market, sell your shares, and do something else. But don’t insult your shareholders and many admirers by going to the government with your hand out. And please, Gerry, do us all a favour: stop whingeing.
Sirius Fund Management
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