Clive Peeters an eeeasy model for success to Harvey Norman

This article first appeared July 12, 2010.

Several weeks ago I wrote that Clive Peeters’ receivers most obvious suitor was JB HiFi… and I was wrong.

While not all the current Clive Peeters stores will move over to Harvey Norman, $55 million gets 30 of the stores and some of the logistics and warehousing structure.

It looks like a good deal for all on day one, with about 1,000 jobs being protected, NAB getting its $38 million back and Harvey Norman adding about $350 million in sales annually. And this is before the Harvey Norman selling model kicks in to raise same store sales… and I can confidently say that same store sales will rise under the Harvey Norman model.

Harvey Norman has the best “half pregnant” retailing model in the world. It’s not a full franchise model, and it’s not a fully corporate-owned model either. It matches the best from each model together to deliver a great shopper experience, deliver profits to shareholders and owners, and offers high reward-based remuneration in each department in each store.

Harvey Norman’s scale and corporate structure allows it to buy well, ship well and create footfall well, just like any other corporate retailer in its space. But it can’t control the cost of its products as well as a franchise operator.

McDonald’s owns the brands and products it sells in its stores and has no competitor for the brands, but does for the products. You can’t buy a Big Mac anywhere else, but you can buy a burger. Maccas can source and re-source the back-end to control costs, while maintaining quality and retaining its point of difference with its Big Mac. Harvey Norman, The Good Guys and Bing Lee all buy similar brands and products from the same manufacturers so price differentiation is tough once a similar scale and logistics structure is achieved.
However, Harvey Norman structures its stores, and departments within each store, as a franchise or like a franchise, depending on where you are in the mix. This is what makes it unique.

Harvey Norman stores and departments are true selling zones. “Interest free credit until 2099”; “Buy one get nine free”; “End of this, and next financial year sales” are only there to create footfall into the stores. The service you get in store and the add-on sales from suggestions by store staff, is due to staff directly benefiting from listening to your needs, asking questions and suggesting “add ons”. This is what makes the environment unique.

Almost all of the people you meet in a Harvey Norman store are there because they are great salespeople, can propose solutions for customers and are paid exactly in line with what they sell. No sale, no commission, but more importantly for them, high sales equals high commission. They are all, from store owners to store staff, major or mini franchisees.

Some readers who aren’t retailers or salespeople may be a little confronted by the idea that when you enter a store you aren’t just there to buy stuff, but that people in store are there to sell you stuff; they are the spider and you are the fly.
I would like to humbly suggest, however, that if you are in a store, you aren’t there because you got lost on the way, or want to get out of the rain. You’re there because you need help with something.

There is nothing more frustrating than having a broken washing machine/TV/microwave on a Sunday morning, doing research online until Wednesday night, visiting a store after work on a Thursday and having a disinterested or uninformed store salesperson not help you. You’ve done your sums, know what you want and nobody can help you. Nightmare… another week without a washing machine/TV/microwave!

So when you walk into a Harvey Norman, the guys on the floor have a real reason to help you. You walk away from the store happy at the end of the day having spent money with them. And so do the staff because some of the money you left in the store goes directly to them… for helping you solve a problem in your life.

Under the Harvey Norman model the approximate $350 million of sales per year that previously passed through Clive Peeters will grow. By how much? My guess is 12% to 20% on a same stores basis; so another $40 million to $70 million per year into Harvey Norman’s coffers.

So $55 million in July 2010, has bought $400 million in sales by July 2011. Good deal.

In his role as CEO of CROSSMARK, Kevin Moore looks at the world of retailing from grocery to pharmacy, bottle shops to car dealers, corner store to department stores. In this insightful blog, Kevin covers retail news, ideas, companies and emerging opportunities in Australia, NZ, the US and Europe. His international career in sales and marketing has seen him responsible for business in over 40 countries, which has earned him grey hair and a wealth of expertise in international retailers and brands. CROSSMARK Asia Pacific is Australasia’s largest provider of retail marketing services, consulting to and servicing some of Australasia’s biggest retailers and manufacturers.