By Glenn Dyer

Is Harvey Norman heading up-market? After taking a
beating at the consumer end of the market from the likes of Dick Smith,
Retravision and other small discounters, the latest issue of Digital Connect News
carries a report that Harvey Norman will start selling up-market
audio/visual and home theatre brands like Yamaha, Jaemo, Marantz and
possibly Bose.

Harvey Norman’s share price remains under
pressure, finising at $2.79 just before Easter, above the 12-month low
set last June, but down from the price at the start of 2005 of $3.15.
And the 7.5% rise in first half profits was considerably less than the
12.5% growth in sales from its franchised and company-owned stores.

This
move seems to be part of the company’s new approach to add more
expensive products to its line-up to add margin to its other commodity
priced lines. Harvey Norman has been under increasing pressure from
Dick Smith and other discounters who are taking margin (Myer and
Megamart are other competitors) out of the market by launching repeated
“sales”.

These tactics have obviously upset Gerry Harvey,
chairman of Harvey Norman. There he was in today’s Financial Review
complaining about Megamart’s unprofitability and urging Coles Myer to
shut the loss-making operation down. He described Megamart as
‘terminally ill’, which it is with annual losses running at $30 million
a year.

So why has Harvey Norman headed upmarket with some new brands? Digital Connect News
quotes a Yamaha spokesman as saying that the reason for the change is
the increasing financial weakness of the specialist audio retail
channel.

Harvey Norman (and its Domayne offshoot) have been
selling large quantities of consumer brands like LG, Samsung, Sony,
Panasonic and Sony, which are not stocked by specialist retailers.

Earlier this year Crikey reported
on a split inside Harvey Norman on how to handle the home theatre,
entertainment/media centre products (so-called convergence products) as
either separate channel, or part of the IT group.