Harvey Norman shells out $7.8m for struggling franchisee

The role franchisees play within big retail networks has come under review following a report by the AFR that Harvey Norman shareholders forked out nearly $8m in “tactical support” last year for a struggling franchisee.

Harvey Norman’s full year results showed that the company had spent $7.8m in the June quarter in payments used to restructure one of its franchisees.a B2B business that sells computers and electronics to schools, corporates and government bodies.

The payment to the franchisee, identified by the AFR as Apple reseller Mac marked the first time Harvey Norman had provided assistance to an individual franchisee since the retailer began disclosing tactical support in its results.

In September, Inside Franchise Business reported a seven per cent fall in earnings for Harvey Norman’s Australian franchise operations to $292m, with the Mac1 payment accounting for the majority of the retailer’s $10.5m increase in tactical support.

On Friday, AFR reported that Mac1, a former Dick Smith owned operation, has since been merged with another Harvey Norman franchisee called The School Locker, with both companies set to compete with JB Hi Fi’s commercial division.

Concerns were raised in 2016 over the emergence of tactical support on Harvey Norman’s books, leading to an investigation by the Australian Securities and Investment Commission (ASIC).

The AFR reported that Harvey Norman has confirmed franchisees were responsible for paying suppliers and that the company would no longer guarantee their debts, however the Mac1 restructure suggests the company is reevaluating how debts are repaid.

Since 2011, Harvey Norman has provided tactical support in excess of $700m in order to relieve franchisees of several operational burdens.

Editor’s note: This story has been updated to attribute the identification of the franchisee to reporting by the AFR.