This article is by Darryl Adams, a government worker and internet tragic. A former IT worker, he still pines for the days of IBM keyboards that go CRUNCH and the glow of green screens. He can be found on on Twitter or on Facebook. Check out his site oz-e-books.com for more articles about e-book readers, retailers, formats and news (or will have when Darryl can be drawn away from reading Delimiter). The views expressed here do not reflect the views of his employer, the ATO.
opinion For those who don’t know their World War 2, Sitzkrieg was the name given by the British press for the period between the fall of Poland and the start of the start of the French campaign launched by Germany in 1940. It was a strange period, where all the signs were there that France was about to be clubbed like a baby seal, but no one on the Allied side believed that the largest and best-equipped army in the world was about to have its head handed to it.
The Kogan versus Harvey Norman “thing” has that feel of it to me.
Harvey Norman is a franchise business set up by Gerry Harvey and Ian Norman in 1982, from the ashes of Norman Ross. It is a traditional department store, selling established brands in such things as
computers, bedding, white goods and furniture. It is structured so that every department in the store is operated as a separate franchise. It now has a presence in 7 countries, including New Zealand, Northern Ireland and Malaysia.
Kogan Technology is a technology manufacturer and retailer. Established in 2006, it is a web-based direct to consumer business. Unlike Harvey Norman, it only sells its own brand and has established a range of flat panel TV, cameras, TV set top boxes and e-book readers.
Now, apparently, there is a war going on between Harvey Norman and Kogan. In reality this just two accomplished salesmen flailing about on the media and web. However, while I believe this is a retail Sitzkreig, it has all the hallmarks of being the lull before the storm.
And the reason is Amazon.
The US has always had a culture of mail order sales, from the Sears and Roebuck catalog to buying shoes from Zappos. Australia has never had the same level of mail order purchasing, but it has always been there. However, Amazon US sells a wide range of products from electrical to computers, books, groceries and clothing.
Harvey Norman’s electrical business model is to stock name brands. This means that a lot of the promotional material is provided by the manufacturer, and Harvey Norman reinforces this with its own
advertising. The product line-up is pretty much in the hands of the manufacturer, from model refresh, length of time available and stock availability. As a result, there is a large infrastructure involved in
selling these products, from warehousing of similar stock, the logistics of moving items from manufacturing plants (generally in China) to Australia, then to warehousing in Australia and then moving the products to the retail stores.
Add to that the cost and administration required to maintain a brick and mortar shop, with staff, upkeep, facilities and shop fitting requirements for numerous shops. There is also a large allocation required for advertising, from catalogues, media and web advertising.
Then there is Kogan. As either the manufacturer or the group purchasing the tech from the manufacturer, it has more control on the product. So if there is a change in production specs, Kogan can react faster than Harvey Norman. And since it only carries its own brand, it does not need to warehouse similar products. In addition, by using a direct to consumer model, the company has less logistical overhead than traditional retailers, as it does not have to maintain physical retail space, with its corresponding costs.
So Kogan can sell equivalent products cheaper than traditional retailers.
Two things maintain traditional retailing dominance: The ability to physically see the product before purchasing and the public goodwill towards traditional brands. With commoditisation, brand rebadging,
unified UI (like Android for phones and small form factor netbooks), brand loyalty will be less important in the future. New criteria like specifications, form factor and price will replace decisions of brand.
So, while Gerry Harvey is making throwaway lines like “Kogan Technologies has lost”, it is in fact Harvey who is facing being swamped by fast-moving direct to consumer manufacturers. Like the large French army ready to re-fight World War 1, Kogan is invading via the Ardenne forest.
The irony is that big box retailers will begin to see the pressure from direct to consumer web retailers that they themselves put on smaller retailers, and they will be lucky to survive.
Image credit: Kogan Technologies
Didn’t Gerry Harvey say the Internet was “bullshit” only a few short years ago? Bottom line is that his business is under attack and as Darryl has pointed out, his business model is not able to cater for it. How does Harvey Norman setup a centralised, well coordinated internet sales presence for say computers when each of the Harvey Norman Computer Superstores has an independent franchisee? He can’t. So the only weapon left in his arsenal is to discredit his competitors.
He’s lucky in that Kogan is really somewhat of a neophyte in the market, having been operating for less than five years. If however an Amazon or someone like that decided it wanted a piece of the Australian market, rather than sitzkrieg, it would be blitzkrieg. Gerry Harvey is lucky that the “tyranny of distance” and a relatively small market makes Australia unattractive. Harvey Norman would not be able to get away with how it operates in a really tough competitive market like the US where you have Wal-Mart and Best Buy on the physical store side and Newegg.com and Amazon.com on the virtual side.
Don’t forget JB Hi-Fi. They’re doing it right.
Do any delimiter readers own a Kogan? Just interested. I’ve almost a couple of times, but still haven’t pulled the trigger.
I don’t think Gerry Harvey is a stupid as we all want to believe. He knows the future of shopping is online, or at the least, includes online. He’s been around long enough to spot a missed opportunity when he sees one. My bet is he’s just stirring the pot while he figures out how to unlock his business from the web of franchising described by Darryl and will soon launch a fully fledged online store. You heard it here first ;-)
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