Five reasons Gerry Harvey’s online strategy is sound

I’ve done a bit of thinking about Gerry Harvey’s new online strategy over the weekend and I’ve come to the conclusion that it is sound, particularly for a business that has some very, very specific issues.

Now, I know that many readers will almost instantly disagree with me and some might find my position unusual, given we’ve spent three years railing against Harvey for being very short-sighted about online retailing after he declared in late 2008 that it was a “dead-end”.

But now he’s taken the plunge with the new Harvey Norman Big Buys deal-a-day site, I think it’s important to actually take a look at the site and how it fits in with the wider company strategy.

There are five strategic reasons that I think the new online strategy works:

It shuts everyone up

This is no small thing. For the best part of the three years, the media, analysts and other business people (led by Ruslan Kogan) have been attacking Gerry for his refusal to embrace online. As online sales have risen, those critics have grown in number and volume, and quite rightly. No doubt Gerry was also getting questions about online from his board, his friends, his customers, his managers and his franchisees.

This site puts a stop to all that. There will be plenty ready to criticise the new site, but at least they can’t say that Gerry isn’t in the game.

It won’t annoy his franchisees

Every Harvey Norman store is basically a franchise hub – there’s a computer franchisee, a bedding franchisee, a furniture franchisee and so on. Gerry knew that if he was to set up a website selling products selling those products, he would be directly competing with his franchisees – and they would naturally be unhappy.

So instead, he’s gone down the deal-a-day path and made it clear he won’t be selling stuff you can buy in a physical Harvey Norman store – like cosmetics, as we saw last week.

That’s quite clever. He gets to say that he does have an online retailing presence, he gets to expand into some new categories and prevents the creation of obstacles that might prevent shoppers going into Harvey Norman stores as they usually would, thereby keeping franchisees happy.

It’s manageable

Gerry hasn’t tried to set up a giant online retail stores with thousands of products. Instead, he’s built a relatively small business that can perch on the side of the Harvey Norman empire and grow slowly but steadily. It doesn’t look like it will suck up too much money and given Gerry doesn’t expect to make a lot of money from it (he’s right there – even JB Hi-Fi admits it’s not making more than a few million from online retailing) that’s probably sensible.

It’s outside the main Harvey Norman empire

Gerry hasn’t talked about exactly how the new site has been structured, but the site itself is being run by a company called eDeal Busters, which does create the impression that this is a separate business unit operating outside the normal Harvey Norman empire.

This is underlined by the fact that Harvey Norman has poached staff from around the online retailing sector, including a DealsDirect executive. This looks like a good strategy, as no one within Harvey Norman appeared to have any great online experience.

It could just work

Gerry’s rivals – notably DealsDirect and Catch of the Day – have been very quick to say that Harvey Norman are so late to the online retailing scene that it will struggle to make any sort of competitive inroads.

They may be right, but then again they may not.

Last week when I spoke to DealsDirect co-founder Paul Greenberg about the rationale for raising capital by selling a stake in the business, he said one thing the new capital would do is to negotiate more deals with companies with bigger brands. In other words, you do need capital and clout to win the really big boys over.

Harvey Norman doesn’t lack for capital and clout.

Or experience in tough negotiations with big suppliers.

Or warehousing and logistics infrastructure and experience.

Or one of the most powerful and recognisable brands in Australia.

If Harvey Norman Big Buys can get some decent deals with some big brands, it could just build momentum very quickly.

There are of course some big potential problems with this move. I see two main issues.

Firstly, Harvey Norman does put its brand at some risk if Harvey Norman Big Buys doesn’t work. It will not be a good look at all if one of Australia’s most respected retailers can’t get a deal-a-day site up and going with all its resources and clout.

There could also be some damage to the brand if the new site gets its deals wrong. Harvey Norman has a reputation for big brands, warranties and good customer service – it wouldn’t want to put this at risk by selling cheap and nasty products through its website.

Second, Gerry could find that the bird has well and truly flown and building the sort of scale – that is, a big enough customer database and strong ties with suppliers – is very difficult.

But there’s an easy solution to this one as well – just gobble up a DealsDirect or a Catch of The Day with a tasty takeover. The combination of the online retail experience of one of these groups and the brand power of Harvey Norman would be quite compelling.

So will Gerry move from online zero to online hero? Does he really believe in the power of web sales?

To both questions, I would answer: Probably not.

But he is now in the game, and a bit of early success could be just the thing that makes Gerry a convert.