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David Richards

Is The Franchise Model Broken? It Is Very Close To Being

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When Gerry Harvey went into battle recently for a 10 percent tax on overseas online purchases he set off an explosion which resulted in most Australians suddenly becoming aware that a lot of retailers are price gouging when one compares the overseas cost of a same brand product to that being sold in an Australian retail store.

It also exposed the online weaknesses of several major retail groups such as Harvey Norman, The Good Guys, Betta Electrical and Retravision who primarily operate as franchisees.

Online today is no longer about having a web site and a transaction engine. Online is about delivering choice, competitive pricing and above all having the engines in place that allow operators to deliver a first class customer experience.

Email marketing and product tracking engines that allow consumers to track their purchase on a mobile or tablet are essential and so is bar code linked technology that allows consumers to access the latest information about a product or Company.

A web site and a transaction engine was web 01, smart retailers in the US and Europe are now moving to web 03, with content openly available in several forms on multiple devices.

Groups like JB Hi Fi who already has a web site and company-owned store operation can respond quickly to change. Franchise operators are not in the same position, as Harvey Norman has recently found out.

To have to carve out an online margin for a franchisee and an operator like Harvey Norman or A Good Guys, instantly creates a layer of margin that non franchise operators don’t have.

Then there is the issue as to who the franchisees are competing against. Is It Harvey Norman Vs The Good Guys or is it Harvey Norman Vs Amazon or E Bay store operators who are able to ship from overseas warehouses direct to an Australian consumer.

These operators already have the technology that allows them to engage with consumers across several levels and several continents.

 

They have the comparison pricing engines and the engines that prompt the sale of an accessory or extended warranty purchase, which in a lot of cases is supported by vendors who are moving to global warranty programs for their products.

They also have the bar code technology that confirms instantly when a product has been delivered to a customer.

Going forward, an Australian retailer is going to have to think global to compete locally.

Working in their favour is the fact that Australians will pay a higher margin to buy locally. A recent Australian Institute research study revealed that Australians expect to pay a difference between 20 and 35 percent for an Australian delivered online product. Anything above that and the consumer will shop online.

This presents big problems for a franchisee that has neither the technology nor the knowledge nor the funding to compete in an online environment where the benchmark is being set by a big global operator such as Amazon.

By late 2012 we will see several Australia retail operators roll out overseas linked and operated web sites. Companies like Myer are already giving it a go. This will add a further level of competition as Myer battle with big brand players that are linked to organisations like Google and Amazon. 

HP OZ Reports Record $58M Loss After Being Hit With $3M For Misleading Consumers

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EXCLUSIVE: Hewlett Packard Australia, which was ordered by a Federal Court judge on Friday to pay a $3M fine and $200,000 in legal costs for misleading consumers, has reported a massive $58,238,000 loss for 2012.

What is not known at this stage is whether HP’s consumer PC division, which the US company was looking to sell 12 months ago, was a significant contributor to the losses. IDC reported that their PC market fell over 20 percent last year in Australia.


Also unknown is which Australian executives made the decision to engage in misleading consumers and whether there will be any personnel fallout from the Federal Court decision.


According to documents filed with the Australian Securities & Investment Commission, HP Australia went from a profit in 2011 of $134M to a loss of $58M in 2012. A contributor to the loss was a $30M tax liability.


Sale of goods revenue in 2012 slumped from $2.58 billion in 2011 to $2.18 billion.


Also slumping was finance revenue, which fell from $6.3M to $5.16M.


Despite losses and a fall in revenue, wages and salaries at the company rose by 80 percent, from $440M to $754M.


Marketing costs also fell from $38M to $32M. It is not known how much of this expenditure was co-op dollars attributed to retailers selling HP products.


The Federal Court  slapped Hewlett-Packard with the $3 million fine after a lengthy investigation by the Australian Competition & Consumer Commission, which concluded that HP management engaged in a “widespread and systemic” process that resulted in hundreds of consumers being misled by the Australian subsidiary.


ACCC chairman Rod Sims said it was an important case. “The misconduct was widespread and systemic from a very large multinational firm.” 


Rather than face court, where evidence would have been presented in an open court, HP Australia chose to negotiate a settlement. The court found that HP gave clients misleading advice on their consumer guarantee rights.


According to ACCC sources, HP management involved in marketing HP PC products in Australia instructed HP call centre personnel to tell customers that products purchased online could only be returned to the company at its sole discretion, which was also how it determined product remedies.


HP retailers have also been implicated in the companies’ misleading conduct.


Consumers were told that they were required to have their product repaired multiple times, before being entitled to a replacement.


Another false claim was that the warranty period for HP products was limited to a specified express warranty period.


The ACCC initially instituted proceedings against HP on October 16, 2012.


The year 2013 is not looking any better for HP, after research group IDC reported that the Australian PC market had declined 21 percent in the first quarter of 2013, compared to the same time last year.


HP took the top slot in the Australian PC market in the first quarter of 2013, with a 19 percent share. 


IDC is forecasting a further decline of 15 percent across the Australia and New Zealand markets.


The announcement that HP had deliberately engaged in a process of misleading consumers and had been fined $3M after a series of discussions with the Australian Competition & Consumer Commission was made late on Friday afternoon.


It is not known whether HP proposed a Friday afternoon announcement to the ACCC in an effort to minimise the PR fallout from the Federal Court decision. 


Late on Friday, neither HP, nor their PR company, refused to supply a spokesperson for the company.


Shortly after calling HP and PR company Burson Marsteller, SmartHouse got a spin statement from Biana Harkovskaya, Acting Media Relations Manager HP Enterprise Business, South Pacific.


Receptionists at both HP and Burson Marsteller said they had been instructed to take the names of media personnel.

JB Hi Fi PC Sales Up As PC Market Tanks

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PC manufacturers in Australia are concerned that the new Microsoft 10 OS will not give them the lift that the industry needs after PC sales fell somewhere between 9.5% and 11% in the last quarter.

Beating the downturn is JB Hi Fi who before their “quiet” period reported strong PC growth especially for Lenovo and Acer PC’s. 

PC sales in the second quarter suffered their sharpest decline in two years, according to data released by research firms Gartner and IDC. 

Manufacturers shipped 68.4 million PCs in the second quarter, a 9.5% drop from the same quarter in 2014, according to Gartner. Based on IDC’s data, the market saw a 11.8% year-over-year decline in the second quarter of 2015, with worldwide PC shipments of 66.1 million. IDC doesn’t count tablets in its figures.

Analysts attributed three factors to this decline: companies reducing PC inventory in anticipation of Windows 10; weak exchange rates effectively making PCs more expensive; and unusually high PC sales last year because of Microsoft phasing out support for the Windows XP operating system.

Over the weekend Toshiba teamed up with Harvey Norman to offer several cheap notebook deals with the big retailer using TV and catalogues to promote the notebooks due to poor Toshiba notebook sales across their network. 

Lenovo maintains a strong lead in the latest numbers with a market share of nearly 20%, selling 13.5 million units in the second quarter, based on Gartner’s numbers. 

But the Chinese company also experienced a 6.8% shipment decline over the same quarter last year – its first decline since the second quarter of 2013.

At both Harvey Norman and JB Hi Fi Fi Lenovo has increased their share of the consumer notebook market.

Apple  saw the biggest growth out of any PC vendor. Worldwide shipments for its Mac computers jumped 16.1% to 5.1 million units in the second quarter over the same quarter last year, according to IDC. The research firm said Apple may be benefitting from uncertainties surrounding Microsoft’s Windows 10 with tens of thousands of consumers switching to the iOS from Apple as opposed to a free Windows 10 upgrade. 

Globally Acer PC shipments declined by 20% in the second quarter from the previous year, according to Gartner – and by 27%, according to IDC’s count.

Many in the PC industry are expecting the impending release of Microsoft’s Windows 10 operating system to help spur sales in the second half of this year. But even though Windows 10 is coming out on July 29, analysts don’t expect the new operating system will be enough to bring growth back to the industry this year. Gartner expects shipments to decline 4.4% overall in 2015. Because Windows 10 is a free upgrade for existing Windows users, IDC expects many of these users will stick with their current PCs rather than buying a new one.

Analysts expect the PC market to stabilize in 2016.

Big W Sale On The Cards As Investors Look At Rebranding + New Categories

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A leading fund manager has said that Woolworths should ditch its struggling Masters and Big W brands, the recommendation comes as at least two funds approach Woolworth’s management about the acquisition of the Big W department stores.

ChannelNews was told earlier this week in London, that one well known Sydney fund recently met with financiers in London to discuss the raising of capital for a tilt at the Big W chain of stores.

As part of the discussion the concept of rebranding the stores and expanding the categories was discussed.

Hamish Douglass, the founder of Magellan Financial Group has said that Woolworths will struggle for “some time” as the big supermarket group brings in a new management team, he recommends that Woolworths sell their struggling Bi W stores. 

ChannelNews understands that one finance group believes that they can turn the Bi W business around by expanding home wares, consumer electronics and appliances while also selling budget clothing and toys.

Earlier this week Woolworths home improvement partner Lowe’s Companies injected another $90 million into their loss-making Masters joint venture – the fourth capital injection this year.
 
Documents lodged with the Australian Securities and Investments Commission this week show that the Hydrox Holdings joint venture issued 90 million new shares at $1 each – 60 million to Woolworths and 30 million to Lowe’s – on August 28, the same day that Woolworths revealed that losses from home improvement jumped 33 per cent to $224.7 million in 2015.

Big W has been labelled an ‘albatross’ on Woolworths by leading fund manager Hamish Douglass.

Fairfax Media reported that losses at Masters blew out from $176 million to $245 million, while profits at Home Timber and Hardware rebounded 198 per cent to $20.9 million, boosted by recent acquisitions. 

“In the long term, we don’t see Big W fitting part of the Woolworths’ portfolio,” says Magellan’s Hamish Douglass.

“Hopefully over the next 18 months, they will get those albatrosses off their plate.”

Woolworths and Lowe’s have invested $3.22 billion into the joint venture, up from $2.9 billion last year, but the pair are not expected to see a return on their investment for many years.

Most analysts believe the business will not break even until 2020 at the earliest.

Masters is generating sales of less than $20 million a store, compared with estimated operating costs of $26 million a store, so losses have increased as more stores have opened.

Earlier this week hardware consultant Geoff Dart, a director of DGC Advisory, said accumulated losses could reach $1.3 billion by 2020 unless Masters changed its format to focus on the home decoration and lifestyle market.

EXCLUSIVE:Former Best Buy Company Makes Offer For Dick Smith Tipped To Be Accepted

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The Five Star Chinese retail chain that was 75% owned by giant US consumer electronics retailer Best Buy, has put in a none binding bid to buy Australian retailer Dick Smith, the offer is believed to have been accepted by the receiver Ferrier Hodgson, who is waiting on acceptance by the banks who placed the mass retailer into administration.

According to sources two offers, one from Indian conglomerate Tata, and another from Shenzhen MTC were rejected with the Jiangsu Five Star Appliance Co., Ltd offer, the only remaining viable bid. 

All of the Companies that have made offers are believed to have approached the receiver after the formal bid process closed in January. 

Five star was the only Company that put in what has been described as an “acceptable” offer. 

Currently Five Star has several senior Chinese executives in Australia running due diligence along with their Australian CFO, at this stage their intent is to buy all of the Dick smith stores in Australia and New Zealand as well as the Move stores in Australia insiders said.  

They then plan to close 45% of Dick Smith stores and any future stores will be “significantly larger” than current Dick Smith stores said a source. 

The Company which was 75% owned by Best Buy are currently concerned about the financials supplied by Ferrier Hodgson and want to conduct their own due diligence audits. 

ChannelNews has seen the financials that were supplied by Ferrier Hodgson.

Five Star have made suggestions that the Company places an upfront bond and takes over the running of the retailer for several weeks before making a final payment.

According to Dick Smith sources Five Star is believed to have approached several former managers in an effort to obtain and information while evaluating their possible employment in the new Company. 

On June 8, 2006, Best Buy acquired a 75% interest in Five Star for US$184M which included a working capital injection of $122M and transaction costs, they sold their share in the business in 2014.

What is not known at this stage is whether the stores will be branded Dick Smith, or Five Star.

ChannelNews has been told that Best Buy has researched the Australian market on “a number of occasions” in the past. 

Ben Cavender, a Shanghai-based analyst at China Market Research Group, said that when Best Buy decided to expand the Five Star Stores in China that they lagged behind competitors in the Chinese market.

Wang Jian, co-founder of Five Star, was appointed global vice president for Best Buy at the time. We have also been told that despite the sale of shares in the Company by Best Buy the two Companies still have a close working relationship when it comes to the purchase of goods.

Five Star, based in Nanjing, eastern Jiangsu province, has about 170 stores in seven provinces, employs more than 8,000 people and had sales of 24.7 billion yuan ($3.8 billion) in 2009, according to its website.

ChannelNews understands that an announcement will be made on Thursday.

Microsoft Mobile OS Hurt By Android Sales

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Microsoft’s Windows Mobile platform is in trouble with new research revealing that Google and their Android software is more popular than the Microsoft offering this is despite the fact that one of the biggest selling phones at Telstra last month was the HTC HD2 which runs on a Windows Mobile platform.

According to research Company Gartner, Google’s Android was the fourth most popular operating system on smartphones sold in the first quarter, research firm Gartner said overnight.
Android, which was in 10 percent of smartphones sold in the quarter, still lags Nokia’s Symbian, Blackberry-maker Research in Motion and Apple.
Gartner said Android phones were already outselling the iPhone in some markets less than two years after the Internet search giant entered the market.
More and more start-ups are developing applications for Android, boosting interest among consumers and posing increasing risk to Apple, venture capitalists told a Reuters Summit in San Francisco.
While Apple’s app store offers more than 200,000 games, tools and other software to jazz up the iPhone, against just 38,000 for Android, the openness of Google’s mobile operating system is helping it gain popularity with developers.

Sony Sack 32 With Simple 98 Word Email

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At Sony a product press release is worth a thousand words but the sacking of 32 staff which was tipped by ChannelNews last week is only worth a 98 word email.

In a statement issued late this afternoon Sony CEO Carl Rose has engaged in pure PR spin in an effort to minimise the brand impact of the sacking of the 32 employees across the Sony Australia operation.

Rose who came back from the UK to head up the Australian operation said” Today I announced some structural changes within Sony Australia. These changes will result in 32 redundancies across the company”

The changes reflect a strategic shift to protect our competitive position in the local market as well as the impact of the global economic slowdown on projected sales growth.

After a thorough review across the business, we have made structural changes in the areas of AVIT Sales, Marketing, Strategy & Brand Development, Customer Service & Operations and Commercial Management”.

Late last week Rose was bragging about how the Company intended to spend millions on marketing and PR in 2009.
 
He added “As always, we remain committed to reviewing and monitoring the environment to ensure the long term viability of our business.

Missing from the press release is any reference to whether any senior management have been retrenched or whether another wave of retrenchments are expected later this year.

EXCLUSIVE:Gerry Harvey Gives Disgraced Kleenmaid Director A Job

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Andrew Young a former director of bankrupt appliance business Kleenmaid and Gerry Harvey have become the flowepot men after Gerry gave the disgraced Young a job running a NSW, agricultural business that was placed into administration earlier this year.

Andrew Young, who is facing 20 criminal charges in Queensland following the $100M collapse of the Queensland based Kleenmaid business is now running a new business called Family Fresh Foods.

has also been linked with another NSW based appliance business called Fulgor Milano in Willoughby NSW.

The business sells Italian appliances. 

According to sources close to Andrew Young the disgraced director has travelled to Europe and China recently, “looking at how to best grow vegetables hydroponically”.

The business Agrifresh NSW Pty Limited was placed into administration in February 2015.

Shortly afterwards Gerry Harvey acquired the assets of the business which was renamed Family Fresh Foods, he then got Andrew Young to take over the running of the business” despite him having very little knowledge about agriculture” said one source. 

According to the source, Young who is facing 7-10 years in jail if convicted on the fraud charges, has already started to “throw his weight” around in the new business much to the dislike of the staff at the Peats Ridge business.
 
A person close to Young said “Why Gerry Harvey would give this guy a job running a business is beyond logic. Young has been big noting himself with staff. When Gerry Harvey was confronted by the appointment he said that he had known Andrew Young for several years and that he was pretty smart”. 

The source who does not want to be named said “This is a person who is facing a lengthy jail term if convicted. He is currently living above an appliance shop he is involved in running in NSW, one has to seriously question where all the money has come from that the family of Andrew Young has been able to invest in new businesses”.

They added “Brad Young his brother who is also facing criminal charges is involved in the running of two shoe shops, one in Chatswood NSW, and the other in Long Beach California, they would have had to have access to spare cash or investors who don’t care about their backgrounds to fund these businesses”. 

 This week three former directors of the Queensland based Kleenmaid Group were set to stand trial on  20 criminal charges, including a $13 million fraud against Westpac following the collapse of Kleenmaid.

At the time Kleenmaid operated 22 stores (including 15 franchise stores), and employed over 200 staff, more than 10,000 people were left with debts as a result of the collapse.

6000 Kleenmaid customers lost over $28.5 million alone, among them were hundreds who had purchased faulty products and when they went to claim on their warranty found that the warranty claims were worthless.

Police charged the directors Bradley Young, Andrew Young and Gary Armstrong with 18 charges of insolvent trading.

Neither Andrew Young or Gerry Harvey have commented for this story. 

Consumers Give New Microsoft Store A Miss But They Are Flocking To Apple

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Ten days ago it was a massive rent a crowd that was flocking into the new Microsoft store in Sydney, lured by free goodies and concert tickets.

Now the rent a crowd has gone and Microsoft staff are left to talk to themselves as real consumers desert the store in droves.

A visit to the store today by ChannelNews revealed that there were more people looking for help with their Windows smartphones and notebooks than what was there was customers looking to buy a new product.
 
Two people that ChannelNews spoke to said that the only reason that they were there was because they were having problems with a Windows 10 migration. 

The below image was taken at 10 55am today Wednesday 25th of November 2015.


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No customers, but lots of staff talking to themselves at the Microsoft store.


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Meanwhile at the nearby Apple store consumers were flocking around display cabinets to get a look at the latest Apple products. 

Ironically the Apple Watch counter was deserted. 


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Meanwhile the Apple store which is one street away from the Microsoft store was packed with consumers buying Apple products.

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It’s interesting that Apple staff have changed their T Shirts from their traditional blue to red to match Microsoft staff.


Microsoft staff have told ChannelNews that traffic is “slow” and that very few customers end up buying a product at the Microsoft store. 

Ten days ago Microsoft spin doctors Ogilvy PR was trying to convince the Australian media that there was a need for a Microsoft store.

 They even pulled in hundreds of people lured by the offer of free gifts, tickets to concerts. They saids the store would be as popular as the Apple store, they said there was a need for the store.

They even said that Microsoft products along with the new Windows 10 generated “genuine” consumer appeal.  

It’s believed that Microsoft went out of their way to appeal to Asian markets with the bulk of those who turned up for their free Microsoft experience being Australian and Asian nationals.

Microsoft management are not saying how many people have been through their new store.

Another store that attracted more people than Microsoft was attracting was the nearby Samsung store, where people queued to talk to a Samsung sales assistant. 


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Samsung Store George Street

EXCLUSIVE: David Jones Tipped To Be Running Ruler Over Harris Farm Markets

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The Woolworths SA owned retailer David Jones is believed to be in discussions to buy the Harris Farm Markets chain of food stores.

According to sources both retailers have held discussions with a deal tipped to be in the making. 

David Jones management believe that Australian consumers are becoming increasingly willing to pay a premium for “quality” food similar to what Harris Farm are currently selling.


ChannelNews understands that the model that David Jones are looking to replicate in Australia is the UK Waitrose model, with the Company also looking to sell small food appliances used for cooking at their new premium food locations which will sell also sell combination of precooked foods, meats gourmet foods, and organic fresh food. 

“People these days want real food and there’s a big movement towards real food, from farm to table,” said Jones the Grocer chief executive Mark Watson. “As people get more educated about food there’s definitely room [for more].”


Mr Watson said Jones the Grocer, which opened its first store in Sydney’s Woollahra in 1996, was not surprised to hear that South African food and clothing retailer Woolworths Holdings had appointed one of its executives to revamp David Jones’ ageing food halls and investigate opening a chain of upmarket food stores.

Former David Jones chief executive Peter Wilkinson agreed, saying Australian consumers had a strong appetite for high-quality premium food where the provenance was indisputable and customers were able to track the entire supply chain.

“There’s no doubt there’s been a material emergence of people that care deeply about what they’re eating – I think Australia is ready for it,” Mr Wilkinson said.

Mr Wilkinson, who was chief executive of David Jones for seven years, ultimately lost his job after a failed foray into gourmet food that cost the department store chain $120 million between 2000 and 2003.