ranchises, but it’s their international operation that’s driving Gerry Harvey’s future aspirations. “Our ambition is to make our overseas business bigger than Australia,” Harvey told Inside Retail Weekly. “The long-term aim is to have Australia as the junior partner, but how long that will take or whether we will ever get there is … it’s our dream. It may not happen, but at least we will give it a go.” Harvey is optimistic, and for good reason. Harvey Norman has maintained an international presence in New Zealand, Ireland, Singapore, Malaysia, Slovenia and Croatia for some time now, but until FY16 results in most of those countries were tepid at best. That’s changed. Harvey Norman reported a $17.38 million turnaround in the profitability of its company-operated stores in Singapore and Malaysia; a $15.6 million increase in profitability in New Zealand; and a 49.9 per cent reduction in retail trading losses in Ireland to the year ending June 30. Buoyed by these results, Harvey says that the company’s international operations are “still in their infancy”, singling out New Zealand as a template for what he would like the retailer’s southeast Asian and European operations to grow into. “In New Zealand we’ve done just as well as in Australia, so New Zealand is done and dusted, if you like. But the other places we’re talking about, they’re not done and dusted. “We will have to open more shops. I’m not prepared to go there until I’ve got better results than what I’ve got, and that’s why we’ve not expanded over there over the last 10 years or so, because the results have not been good enough out of the shops we’ve got,” Harvey explained. “Our challenge is to do a lot better with what we’ve got,” he added. Has Harvey got a chance? Harvey Norman’s southeast Asian expansion is already well underway, with the opening of 100,000 square foot flagship store in Singapore last December and a concept store in Malaysia. But southeast Asian markets aren’t necessarily retail friendly. According to Euromonitor data, Singapore’s retail sector has experienced rapidly slowing growth over the last five years, with store-based retailers registering value growth of just two per cent in 2015. “It’s difficult to gain organic growth in Singapore where competition is cut-throat and the market for electronics and appliances specialists is highly saturated,” Euromonitor research analyst, Yu Xian, told Inside Retail Weekly. Xian has pinned Harvey Norman’s FY16 success in Singapore on its new flagship store, which he says has managed to stand out from local competitors by delivering an evolved shopping experience, but is less confident in their Malaysian efforts. “Comparable sales for [Harvey Norman’s] Malaysian operations saw straight decline from Q1 to Q3. Q4 was its only salvage for the full year,” Xian said. “Malaysian consumers are still cautious in spending. Retailers are rolling out heavy price discounts in order to survive, but this will eventually weigh down on profit.” In Europe, Eurostat data has indicated that retail conditions in the Eurozone are improving, exhibiting 2.4 per cent year on year growth in sales in June this year – nearly double the 15-year average. Harvey Norman’s presence in Europe is anchored by its Irish operation, which tipped over into profitability this year, earning $0.5 million relative to a $5.2 million loss in FY15. However, a report published by Retail Ireland assessed post-GFC retail conditions as fragile, with the Brexit referendum result putting FY17 sales growth at risk. External market conditions aside, PwC senior partner, Paddy Carney, believes that a cursory look at the population outside of Australia relative to inside represents real potential for Harvey Norman, who she says is aligning with future retail trends. “It’s just the trend of the future needed to be a competitive retailer. Whether its here or anywhere, it’s such a flat earth now that everybody is global. The fact is, retailers are getting bigger and bigger and you need that scale to be able to offer competitive prices to customers,” Carney told Inside Retail Weekly. “[Harvey Norman] has been quite smart about what they’ve done. They’ve picked off particular countries and tried work on getting those countries profitable rather than going broad brush,” she added. Taking aim at developing economies Southeast Asia appears to be firmly in Harvey’s sights moving into FY17, with his company revealing plans to open three out of their five planned international expansions in the region, including two stores in Malaysia and one in Singapore. According to Xian, retailers such as Harvey Norman are identifying the potential of southeast Asia’s emerging markets, which have exhibited rapidly increasing levels of domestic consumption in recent years. However, Harvey Norman faces stiff competition from local competitors. particularly in Malaysia, where Alibaba-owned pure-play retailer Lazada is a major player in the electronics category. Further expansion into other developing markets will also require a more tailored approach, according to Xian. “It will be a tough fight for Harvey Norman in countries like Thailand, Philippines and Indonesia, where local companies have a very established presence in electronics and consumer appliances. “A more localised approach is also needed for these markets, as their economy is not as internationalized as Singapore or Malaysia,” Xian explained. International sales for a domestic edge Domestically, Harvey Norman aren’t the only ones that have benefitted from Dick Smith’s downfall. JB Hi-Fi has already signalled plans to expand their product range further into large appliances – positioning them in closer competition with Harvey Normans offering. JB Hi-Fi, which reported an 11 per cent net profit increase for FY16, has also recently been considering acquiring The Good Guys as part of its expansion plan, but Harvey isn’t shying away from the competition. While he says that the combination of JB Hi-Fi and The Good Guys could generate comparable sales figures domestically, he maintains that Harvey Norman’s international sales and the quality of their offering give them an edge. “I hope that JB and Good Guys become one, because if that happens I’ve only got one major opposition instead of two. My plan then would be to be better than them, and I’d have the overseas as well,” Harvey said. “JB is a bloody junk shop, Harvey Norman is a proper shop. There’s a hell of a difference, that doesn’t mean they’re a crook retailer – they do well, but their presentation and merchandising and the quality of their shop is not within a bull’s roar of Harvey Norman,” he continued. “Their opportunity to be able to sell top quality computers and televisions is severely curtailed because they’re a bargain basement.” Carney also believes that Harvey Norman’s market share will stay largely intact, characterising the retailers’ international dream as future proofing and singling out their focus on quality. “Harvey Norman has many more years under its belt … you only have to look at Masters to see that it’s quite difficult expanding into new categories and Harvey Norman have been doing it for years. JB aren’t going to find it a walk in the park. “The other thing that really helped Harvey Norman’s results is the quality of products. I’ve been pretty impressed just looking at their homeware and furniture offer, which continues to improve,” Carney said. “Products are just becoming more important these days, because you can go online and choose pretty easily. You can’t skip on products at the end of the day and you’ll get found out pretty quick if you do.”