By Patrick Avenell
Harvey Norman has been significantly increasing its marketing and advertising spend at it seeks to gain market share during a period of depressed consumer spending, with a leading analyst today saying inefficiencies are becoming evident.
This step up in advertising, which includes Harvey Norman’s very strong presence in tabloid newspapers, commercial and subscription TV and sports sponsorship, is designed to steal customers away from retailers that have collapsed, such as Clive Peeters (which was purchased in part by Harvey Norman) and WOW Sight & Sound.
Three years ago, during the first half of FY2009, Harvey Norman’s marketing spend was 5.6 per cent of total sales revenue. During the second half of that financial year, it dipped to 5 per cent. From there, it has increased steadily, with RBS reporting that for the first half of FY2012, advertising spend reached 6.6 per cent.
Harvey Norman yesterday listed its marketing expenses as $204.6 million in the report it released to the Australian Securities Exchange.
Daniel Broeren, director and retail analyst at RBS Equities, said this strategy was having both positive and negative effects on the publicly listed company.
“Firstly, management made it clear on the investor call that its promotional strategy is to ‘maintain and grow share in a contracting market’. This involves an investment in price and the underwriting of franchisee profitability in order for them to maintain their business,” he said.
“As management emphasised on the call, the rationalising of Dick Smith, liquidation of WOW Sight & Sound and consolidation of Retravision suggest that this strategy will yield results medium term. However, it could also be said that the promotions are lacking effectiveness, and the current ‘saturation advertising’ model is in need of review.”
This inability of the saturation advertising model to gain more traction has led to Broeren to suggest that there in an inefficiency issue in Harvey Norman’s advertising. This could in part be due to the company running several separate brands of similar stores, such as Harvey Norman, Joyce Mayne, Domayne and Clive Peeters.