Is Amazon the greatest fraud in the world?

Ross Greenwood speaks to Executive Chairman of Harvey Norman, Gerry Harvey, about the entry of Amazon in Australia

Introduction: Is Amazon the greatest fraud in the world?

Ross Greenwood:  Welcome back to Money News right around Australia. I did tell you a little earlier that shares in both JB Hi-Fi and Harvey Norman jumped by more than 6% today. There is no coincidence. Today was the very first day of trading for www.amazon.com.au here in this country. Now the important part about this was when people started to analyse and look at the products on Amazon.

Either those being distributed through its Debenham warehouse and around the country, or indeed third-parties who were using Amazon’s distribution center to get their goods out. What was quite clear was that in many areas, that the prices on Amazon were, in fact, more expensive than some of those you could see online at either JB Hi-Fi, Office Works, or Harvey Norman.

As a result, you could understand there would be a bit of jockeying around in price. My belief is, this is now the norm for the future. There might be some specials for one or two items, as a bit of bait to get you in, but as soon as those items are gone, a bit like airline seats up, goes the price. You’ve got to be very careful as to what you’re doing.

The second thing is also distribution. Do bear in mind that Amazon says that it will deliver to most parts of Australia, free of charge, between three and seven business days. The funny thing about this is when we started to look, there were some items that not look likely to be turning up in your mailbox, or on your front veranda, for almost 15 days.

Some of those were through third parties, and not directly through Amazon, it is fair to say. But again, you’ve got to be careful, because what is necessarily promised, is not necessarily what you will receive. With all of that, it seems as though, is Amazon the threat, has it been overblown, I’d suggest not.

But let’s try and find a man who has got some skin in the game. The chairman of Harvey Norman, its co-founder Jerry Harvey is on the line. Hello Jerry, how are you?

Interview with: Gerry Harvey, Executive Chairman, Harvey Norman

Gerry Harvey: Good, Ross.

Ross Greenwood:  Good day at the office?

Gerry Harvey: Busy with the media, everyone ringing up, wanting to do interviews. Amazon, Amazon, Amazon.

Ross Greenwood:  But that’s bread and butter for you. Yes, that’s right. Is it the threat that you would’ve imagined it to be?

Gerry Harvey: It was always overhyped. I’ve never seen anything so overhyped. It’s been going on for a year. In the last couple of months, it’s picked up like the hype, every media you can think of, all they talk about is Amazon. From my point of view, I’ve been trying to tell it the way I see it, people don’t agree with me, but here’s the facts.

Amazon in retail has been doing it for 23 years and never made a profit. My prediction is they will never make a profit in retail. They’ve got a loss company that no other company in the history of the world has gone 23 years making a loss every year, never paying tax. They’ve had a 10-year free kick in Australia where they’ve paid no GST. We’ve all had to pay GST.

Then we get the regulator, you heard what he said. He said, “I think Amazon can sell at very silly prices.” Even, I suspect, he thinks predatory prices where we can’t do it, Woolworths can’t do it, Coles can’t do it, but he says, Amazon, we should let them have a go to get established. He’s the regulator. He has to retract that. That is outrageous that he’s taken this view.

Ross Greenwood:  I did note the former chairman of Woolworths, Roger Corbett, when I interviewed him last week, indicated he believes the ACCC should launch an enquiry into Amazon to make certain it does not have predatory pricing, that it does not take advantage of the fact that it does not make any profits, does not reward shareholders through dividends, because he says that is the way in which it gets its competitive edge, and as a result could very well harm some of our biggest employers and biggest retailers in this country.

Gerry Harvey: Amazon is the greatest fraud in world history in retailing. The Americans are now waking up to the fact that they’re a fraud, that they make no money there, they evade taxes, they never pay taxes. They make no money in retail, they never will, and yet, we applaud them. When they come here with their fake model that doesn’t work, we encourage them, and give them all this free advertising, as if they’re somebody that’s going to be wonderful for this economy.

The reality is they are coming here trying to send every other retailer broke, so that they can own the business. They’re worth $1 trillion. Why are they worth that? Because there are a lot of people in the world who think that they are going to go out there and own the retail business. I don’t know of any retailer in the world, of any size, that makes any money doing online retailing. All of us that do it, we lose money in that department. It’s a cost set up.

We have to do it, because everyone else does it. We do not like online, because it’s just the cost of doing it. But then you get the online people out there saying, “This is a new model, this is how you do it, it’s much more efficient.” Okay, where did you ever make any money, mate? You never made any money. You’re telling us it’s efficient, it’s not efficient. It’s a very high-cost model.

Ross Greenwood:  And I did note today, in October, the retail sales, of the total retail sales in October, 4.5% of them were online sales.

Gerry Harvey: Yes, but that includes airline tickets and all sorts of things.

Ross Greenwood:  Yes, but I’m saying, it’s relatively small in the whole scheme of things. People say it’s massive, but it’s 4.5%.

Gerry Harvey: If you take it on, say, refrigerators, washing machines or lounges, or whatever, in furniture, it’s virtually non-existent. We don’t even know what an online sale is. You want to buy a refrigerator, you go online, then you come into the shop, then you go back online and buy it. Was that a shop sale or an online sale? We put it down as an online because it was ordered online.

Ross Greenwood:  Okay, just one thing, Jerry. Can I pick up here and talk about the pricing, because it seemed to me, today, just even looking, almost like airline tickets. They might put out there that there’s a price. You go and try and buy two of those, but there’s only one of them available, or two of them available, on Amazon today.

But as soon as that happens, a bit like the stock market, if there’s no more down there at that cheap price, the price goes back up to where the other sellers are. Maybe a couple of hundred bucks more for some of the electronic gear that I saw today. Do you think this could be the new way that we have to adjust to the retail environment with Amazon in the game?

Gerry Harvey: A lot of our suppliers don’t supply Amazon for a starter. Amazon have got a record overseas of selling in the electrical area, middle to down market. Most suppliers don’t give them their better product, because they know that they don’t sell it. If you are a supplier with middle, upper product, you don’t really want it in Amazon, because you need showrooms, and they know it. If they lose their showrooms, those manufacturers, the sales of that product will just die.

Ross Greenwood:  The Miele appliances, the Smeg appliances, all these types of things, they’re not going to be on Amazon.

Gerry Harvey: No.

Ross Greenwood:  It’s going to be interesting to watch it. Jerry, you’ve had a good day, a busy day, I know. I’m going to let you go. You have a great one. Thank you so much. We’ll talk soon about it.

Gerry Harvey: See you, mate. Bye-bye.

 

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