Replicating Gerry

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Gerry Harvey is a unique kind of a bloke. He’s unquestionably Aussie, but he is in no way typical. It’s sometimes said that they broke the mould after so-and-so was born, but in Harvey’s case there was no mould – he’s handmade, a one-off.

For those from planet Mars, Harvey is the founder and chairman of the publicly listed Harvey Norman retail group with close to 200 stores including Domayne and Joyce Mayne operations. 

He even created his own version of franchising to suit his dream to build a retail giant, which now has a reach beyond Australian shores to New Zealand, Singapore, Malaysia to far away Europe in both Slovenia and Ireland.

He calls himself a retailer but he reckons he is a different kind of one today.

“When I first started, it was stack ‘em high and sell them low,” he says. “But today we spend a lot more money fitting out our stores and there much bigger, the merchandising is better and we’ve become more specialised.”

His stores are actually broken up into sections with a different franchisee in each ranging from computers to electrical, furniture, bedding, carpet and home improvements.

Harvey does identify one big turning point between the old way and the new way.

“We keep redefining ourselves every year and so what we’re doing now might not be relevant in even a couple of years,” he speculated. “But what works now is having a big shop, a very good fit out, it needs to be customer friendly and it needs specialisation.”

He thinks the failure to get this new era explains the troubles at the likes of Myer and K-Mart. The specialisation means the staff can be educated to be useful to customers who have become more demanding.

Does he rely on retail experts to show him the way? Not likely.

“I have been doing retail for nearly 50 years,” he insists, but he is not adverse to looking further a field. “We travel to all the countries of the world looking at all of the new retail concepts very year and we look at all of our opposition to simply figure out the best way of doing things.”

He might be seen as a single-minded, hard-headed individual but he doesn’t let it get in the way of business best practice.

“I talk to other people all of the time to try to find a better way of doing retail,” he says.

And some of the people he talks to nowadays are inside the ranks of the 10,000 people employed at Harvey Norman. 

On the making of Harvey himself as a businessman, he says it was all learnt doing it.

“By the time I was 30 we had 12 shops or something like that and I think I was chairman of a public company by the time I was 32,” he recalls. “And nothing has been more important than the people we have recruited. I have people here who have been with me since the ‘60s, but I have a fantastic team of people who are under 30.”

Harvey has no problem with the younger X and Y generations arguing that the generation gap is smaller today. 

“When I was young, 45 and 55 was considered old and you didn’t have much in common with them,” he insists. “Today, there’s not as great divergence in opinions and ideas.”

On influences he can’t name one big one, but he admits he is a product of keeping company with people who were good at what they did. He says he always wanted to be better than his opposition and conceded that he had an athlete’s approach to business.

“You got to be passionate like an athlete and you have got to work extremely hard at it,” he advises.

So it seems the very unique Gerry Harvey is a product of nothing more than good old on-the-job education — a fundamentalist, a conventionalist and a passionate competitor. However, he reinvented franchising to suit himself and to avoid its pitfalls, as you might expect a fundamentalist to do.

Based on reservations on how franchising worked elsewhere Harvey designed his system so it would be a win-win outcome from franchisee and franchisor. Giving someone a slice of the action through franchising was critical for getting the best out of people. He once explained this to John Lyons and Edward de Bono, the authors of Marketing Without Money.

“If you gave them [the franchisees] a piece of the business, suddenly they reached new levels,” he says. “They employ the people and buy the stock, but they have the wisdom and strength of a head office structure. It has been fantastic, by far and away a better system.”

The realisation was classic, simply Gerry. In fact, it was reproducing Gerry!

“In my 20s and 30s in business, I used to say to myself, ‘If other people had the same drive that I have got to look after customers we could double this business’,” he recalls. “But they wouldn’t do it — they needed incentives.”

Franchising was the answer, but it needed to be tweaked to suit him.

“The big problem of franchising is that many people pay a terrible amount of money for a franchise and in a large number of cases they make much out of it,” he says. “Some franchisors say they care about you but they are more interested in taking money off you for the franchise.”

Harvey’s franchisees don’t pay to play, but as he pointed out, his top franchisee will make more than $3 million.

“That bloke is a great inspiration for everyone else here in showing how far you can go with this franchise,” Harvey trumpets.

At the heart of his strategy is that he did not want to have people paying for franchises and then being difficult to move on if they didn’t work out. And they do move on if they have trouble cutting the mustard.

Harvey, by way of example, says if there were 100 franchisees then by five years, 30 would have gone and 70 would remain, but it’s not a ‘one strike and you’re out game’.

“If someone does not make it we don’t say forget it,” he explains, “we try to move him to a different store to work with someone else and give him a go maybe in a year’s time. Others we might subsidise for a time.” 

He also points out that there are other jobs in the Harvey Norman empire.

Some years ago Harvey’s then chief financial officer, John Skippen, explained the simplicity of the Harvey Norman model.

“The business is actually quite a simple and efficient operation, but people read complexity into it,” he told CFO magazine. “We receive franchise fees from retail operations in Australia and New Zealand, and retail in our own right outside Australia. Wherever possible we aim to own the property where the Harvey Norman stores operate. Wherever possible we’d like to maximise our franchise fees, but not to the detriment of individual franchisees.”

On the day-to-day operations, the simplicity model prevails.

“The franchisees make their own decision on cutting costs, if necessary,” Skippen explained. 

“All we can do is advise them of any benefits we can see for them. We monitor a lot of their operations to ensure they comply with the requirements of franchisees. We look at measures such as inventory levels, gross profit and dedication to the store – how much time they spend in the store, what their staff think of them, ratios of wages to sales. If the wages-to-sales ratio is too high, for example, it may mean the franchisee is not spending enough time in the business.”

Gerry Harvey and the business that defines him personifies the KISS principle – Keep It Simple Stupid. (My words not his, but it does sound awfully like him.)

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