Why Gerry Harvey is so down on the retail sector

Retail veteran Gerry Harvey has downplayed the prospects for a retail recovery, saying at the Harvey Norman annual general meeting yesterday there is nothing to suggest the environment will get any better soon.

“I don’t see any light at the end of the tunnel,” he said yesterday. “There is zero light. There is nothing to suggest it will get better.”

Harvey described local operations as ”treading water” due to indifferent consumer spending and massive price deflation,

The later has led the company to reposition its shelf space away from electronic goods, which have suffered the largest falls in price.

Harvey used the example of a 32-inch colour TV advertised recently for $299. ”We were selling those things for $699 a year ago,” he said.

”The whole market is in a state of extreme change at the moment so we’ve had to look at our business and say you can’t solve this problem with TV sales because we’ll have to sell three times as many to make up the difference.”

“We’re making more sales of everything, but it’s all cheaper,” he said.

Harvey Norman recently posted a 20% fall in first-quarter profits and a 3.8% decline in 2012 first-quarter sales.

The retailer launched an online store this month in a bid to respond to the rise of cheaper online competitors.

”I think this Christmas will be okay, but this is the first time that I can remember where I haven’t said this Christmas will be the best Christmas ever,” Harvey said.

His comments contrasted with the more upbeat sentiments of Premier Investments chairman Soloman Lew at his company’s annual general meeting, also yesterday.

Premier owns several fashion outlets including Just Jeans, Portmans, and Dotti, as well as stationery store Smiggle.

Despite describing the retail environment as “extremely challenging”, Lew pointed to a rise in retail trade last month.

”Trade in October improved on the trend we saw in August and September,” he said. ”In addition, November is on track.”

Lew said that if current conditions held and the group had a satisfactory Christmas, Premier’s Just Group fashion holding expected 2012 earnings before tax and interest to $95 million, up from $80 million.

Nonetheless, the company relied on growth in its Peter Alexander and Smiggle stores to offset losses elsewhere.

Premier retail chief Mark McInnes said “we’ve opened up to 30 Peter Alexander and Smiggle stores in the last two months, and they are our growth assets with high gross margin and great product differentiation.”

“In our core apparel brands, where we are making a loss or we are marginal or break-even, we are not renewing leases and we are closing based on the rental review.”

McInnes said the company looked to Asia for growth.

“On our doorstep there are countries like South Korea, Japan, China, and Singapore – and those populations, when you add them all together, are… hundreds of millions of people.”

These were sentiments shared by Harvey Norman.

Managing director Katie Page told Business Day the company’s “biggest ray of sunshine is Asia.”