Harvey Norman hit by retail slowdown as David Jones bets big on new credit card

Retail billionaire Gerry Harvey has been forced to issue a rare profit warning as the global slowdown eats in Harvey Norman’s profits.

Retail billionaire Gerry Harvey has been forced to issue a rare profit warning as the global slowdown eats in Harvey Norman’s profits.

Harvey Norman revealed yesterday that its profit before tax for July and August dropped 18.3% to $47.7 million, thanks in no small part to a disastrous performance by the company’s Irish operations, which lost $5.6 million during the period.

Like-for-like sales in Ireland have crashed 25% in the first two months of the 2009 financial year as that country’s economy slides closer to recession.

“If that happened in Australia we make no money and at least half the retailers in Australia would go out of business,” Harvey warned yesterday.

Like most of the world’s politicians, Harvey is praying for a speedy resolution to the credit crisis. He predicts the Australian economy is headed for recession unless a solution can be found.

In order to protect the company’s profitability, Harvey plans to cut marketing spending by 20%, postpone the opening of new stores and slash stuff costs. Harvey is hopeful a good Christmas trading period will help arrest some of the decline in growth, but admits there can be no guarantees given the current climate.

As Harvey Norman battens down the hatches, high-end department store chain David Jones is preparing to spend $20 million promoting its new credit card with its partner American Express. David Jones has recruited 100 staff from within its network to sell the card, which offers reward points for money spent in David Jones’ stores.

Some critics have taken a shot at the card’s $99 annual fee as being too high, but the company’s says its internal analysis shows that the average DJ’s customer – who spends $25,000 a year on their credit card – will earn more than enough reward points to compensate.