Three Harvey Norman subsidiaries in administration amid spat with landlords over closed stores

Administrators have been appointed to three Harvey Norman subsidiaries, amid complaints by landlords about unpaid rents on two abandoned Rick Hart stores in Western Australia.

In a notice to the Australian Securities Exchange on Friday, Harvey Norman said David Levi had been appointed as administrator for wholly owned subsidiaries in Bendigo in Victoria and Mandurah and O’Connor in Western Australia. Levi was contacted for comment this morning but did not respond before publication.

The company’s announcement is believed to be connected to Harvey Norman’s acquisitions of the Clive Peeters and Rick Hart chains, which executive chairman Gerry Havey has conceded was a mistake.

In August, Harvey announced he would shut Clive Peeters stores in Bendigo, Dandenong, Thomastown and Malvern in Victoria, as well as Rick Hart stores in Mandurah, O’Connor and Osborne Park.

It is understood the subsidiaries placed in administration by Harvey Norman were set up to hold the leases to three of these stores.

But the lack of detail in the Harvey Norman announcement has created some angst for a separate Harvey Norman store in Bendigo, which is not closing.

Alex Lobko, franchisee of the Bendigo Harvey Norman store, told SmartCompany this morning his store is performing well.

“We’ve been here for almost 14 years and we are trading strongly, and we intend to be here for another 15 years,” Lobko says.

The ASX notice on Friday followed news that a Harvey Norman subsidiary is being sued by two landlords for refusing to pay rent on stores that have been closed down.

Landlords, Minproc and Primewest, told the Australian Financial Review last week that together they were owed several million dollars in rent on the abandoned Mandurah and Osborne Park Rick Hart stores.

But Harvey Norman chairman Gerry Harvey told the paper he had received legal advice that it could vacate the premises and not need to pay rent. Harvey was contacted for comment this morning but is travelling overseas.

Alongside the closure of seven Clive Peeters and Rick Hart stores, Harvey Norman said in August it would convert a further 16 stores to Harvey Norman stores and two to Joyce Mayne complexes.

Harvey told SmartCompany at the time he had underestimated the extent of the brand damage inflicted on Clive Peeters after one of its employees embezzled almost $20 million from the company, and invested much of that in property instead. Clive Peeters had 45 stores when it collapsed in May 2010.

Harvey Norman last week revealed September quarter profit fell by 19.3%, with comparable store sales falling by 3.8% across the company’s global operations, and down 2.8% in Australia only.

It said the “strength of the Australian dollar, price deflation and intense competition eroded average selling prices and ultimately retail gross profit margins. These factors have reduced franchisee fees received”.

The closure of four Clive Peeters and three Rick Hart stores were also cited for the quarterly sales fall.