Harvey’s big problem

The reason Harvey has been out there spruiking spending is because he, like other retailers, has a big problem

It is little surprise that Gerry Harvey has been a ubiquitous figure on commercial television’s current affairs programs in recent weeks. The retail king has been loudly urging consumers to “buy, buy, buy”, telling them there is no better time to pounce on bargain televisions, furniture and whitegoods.

The reason Harvey has been out there spruiking spending is because he, like other retailers, has a big problem. Consumers have stopped spending in great numbers after the end of last year’s government stimulus package. Add to that is the looming spectre of yet another interest rate rise that would further crimp the ability of households to spend big bucks on flat-screen televisions and the like from Harvey Norman stores.

The company’s recent results show the downward trend in consumer spending. Total sales for the third quarter of the financial year (January to March) were flat and the following quarter’s sales were down 4 per cent.

Profit margins were “holding ok”, according to Harvey, who added “our profitability is not our problem, it’s our sales.”

Harvey Norman shares have fallen about 16 per cent since January 1 and analysts’ forecasts on the stock are mixed. There are some with “buy” recommendations who argue the stock is cheap on current trading levels, while brokers such as Macquarie have “underperform” ratings.

Harvey himself can see little light on the horizon, particularly about the prospect of an interest rate rise. He rails against any rate rises at the best of times but this time he’s been arguing for a decrease in rates. Given the Reserve Bank of Australia’s concerns about inflation and the continuing strong investment in the mining sector that is pushing up inflation, it is an argument Harvey is unlikely to win for some time.

BRW

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