Harvey Norman’s new GST-free site gives franchisees the jitters

Franchisors should seek advice from their franchisees to ensure long-term sustainability, an expert says, after Harvey Norman began selling games on a GST-free website.

Harvey Norman chairman Gerry Harvey, a long-time critic of the rise of online retail, recently announced the launch of a new website, based in Ireland, which will sell computer games.

The site will enable Australian consumers to take advance of the Federal Government’s GST-free threshold, which applies to overseas goods under $1,000.

The move comes after Harvey called on the government to remove the threshold, claiming it is hurting traditional retailers.

With regard to his new site, Harvey said the company is “not doing this with a great deal of joy”, alluding to his concerns about the impact of the site on his bricks-and-mortar franchisees.

Even so, Harvey told The Australian the “odds are very high” that the company will soon begin selling tax-free laptops, computers, digital cameras, mobile phones and iPads on offshore sites.

Jason Gehrke, director of the Franchise Advisory Council, says the argument about charging GST on online purchases under $1,000 is a red herring.

“In most cases, products bought overseas… would still be considerably cheaper than what retailers can offer them here in Australia,” Gehrke says.

“Retailers like Harvey Norman need to look at the other costs in their business or supply chain, which cause the final product to consumers to be dearer than the same product overseas.”

“The commonly held view is that our labour costs and rental costs are the biggest contributors to prices being internationally higher.”

With regard to Harvey Norman’s franchisee network, Gehrke believes the company should be working with its franchisees to ensure they are as profitable as possible.

“I think that they probably need to become a little bit more dynamic to help achieve that,” he says.

“They’ve been very slow on the uptake of online retail… Harvey has demonstrated a less than progressive approach.”

“Trying to be too overprotective of your bricks-and-mortar retailers, without acknowledging a multichannel approach, poses the question ‘What else are you missing out on?’”

Gehrke says while franchisees should do “everything they can” to innovate, they are bound by the terms of their franchising agreement, so the responsibility ultimately lies with the franchisor.

“A franchisor often has to lead from the front,” Gehrke says.

“Every good franchisor should be listening to, and seeking input from, their franchisees about innovations that can improve the long-term sustainability of the brand.”