Gerry Harvey’s leadership lessons

As I wheeled my bike out of the driveway this morning to start the ride to the train station, the first voice I heard on the radio was that of Gerry Harvey.

“We bought the Clive Peeters business,” Harvey said in an advertisement. “Big mistake.”

It’s a pretty blunt message. The ad went on to explain what Gerry had told the market the day before – that Harvey Norman was shutting the Clive Peeters brand he bought out of administration in July 2010 for $55 million.

Four Clive Peeters stores are now running closing down sales, as are three stores in the Rick Hart electrical goods chain that Gerry picked up in the Clive Peeters purchase. The rest of the stores will be converted to Harvey Norman outlets.

There’s no doubt that the Clive Peeters buy was a disaster. Having paid $55 million for Clive Peeters, the division went on to lose a staggering $20 million in its first six months under the control of Harvey Norman. It will cost another $10 million to close the seven stores that will go.

Gerry may have been a little unlucky with his timing – the price deflation we’ve seen in electronics in the last 18 months has been unusual and the continued weakness in consumer confidence has also caught many by surprise – but this was a howler.

“I made some wonderful decisions and I’ve made some shockers,” Harvey told Perth Now.

“You can see you’ve made the wrong decision in retrospect and you move on and that’s what you’ve got to do.”

Gerry deserves a little credit here for some strong leadership.

Few business leaders publicly admit they have made mistakes and fewer still are tough enough to get on the radio to take personal responsibility. I’d also suggest that there would be only a handful of chief executives who would have the cheek to turn the whole stuff-up into a little marketing push for his weekend of closing-down sales.

At a time when many commentators have been baying for chief executives to be accountable – take for example the outrage at Rupert Murdoch’s refusal to take personal responsibility for the mistakes made at News Corp – it is good to see Gerry carrying the can.

Of course, while shareholders might be happy to see Gerry take responsibility for the Clive Peeters, they are right to ask whether he has the strategy to steer Harvey Norman through the wasteland that is retail right now.

Harvey admitted to the Australian Financial Review yesterday that the company’s share price was “shit” and went on to paint a gruesome picture of the retail sector, tipping more businesses closures would be necessary to make the industry sustainable.

“In Australia you have probably got to close down at least 10% of the retailer space to save the other 90%,” he told the Herald Sun yesterday.

That’s a worry for retailers, but it’s also suggests a big shift in Gerry’s strategy.

Last year, the Clive Peeters deal suggested he was determined that bigger was better. Now he’s been forced to accept that conditions in the sector have changed – he’s even stuck a toe in the online retail waters, albeit with a very modest investment in a small daily deals site.

Gerry has been slow in shifting his strategy and it’s cost him. Good leaders admit their mistakes and change tact, but shareholders will be hoping they’ve heard the last of his “mea culpa” radio ads.