Harvey Norman hopes for housing construction boom

Retailer Harvey Norman is poised to benefit from a pickup in housing construction.

Andrew Mudie

Andrew joined the growing team of Motley Fool freelance writers in mid-2013 following years of personal development as a passionate self-taught sharemarket investor. At the time, Andrew was an engineer by trade, writer by hobby, and an investing nerd by passion who spent far too many breaks reading, writing and learning. Andrew’s first investing lesson came with his first stock selection in 2011 when takeover rumours caused a spike and subsequent plunge in the share price of Woodside and then the 21% fall in the market through mid-2011. The next four years of investing saw Andrew dabble in a vast array of strategies until settling on his favourite investment methodology, which is closely aligned with that of the Motley Fool: Fundamentals-based long-term buy-and-hold of great companies at great prices.

Published September 17, 2013 3:52 pm AEST

Harvey Norman (ASX: HVN) executive chairman Gerry Harvey appeared on "Inside Business" over the weekend to discuss the company's prospects over the next 12 to 24 months.

Mr Harvey emphasised Harvey Norman's position as the retailer best positioned to benefit from a retail housing construction boom in the near term. The retailer sells nearly everything required to furnish a new house, from bedding and appliances to outdoor equipment and pool goods.

Mr Harvey was optimistic about the future of the housing industry, noting the apparent lack of dwellings in Australia to service the population. He favoured seeing more dwellings built instead of house prices rising dramatically, as the effects on the economy of increased construction will far outweigh the benefits of increased wealth of homeowners.

Increased house and apartment construction will flow through to all of the community, from parts manufacturers, builders, tradespeople, agents, the government and especially retailers. Mr Harvey was also optimistic about the effect that the mining sector will have on housing too. "I don't believe the mining boom is finished, so you've got the mining if not boom, big boom activity still strong up there and then you've got a housing industry recovery and together you've got an economy that has got reasonable growth prospects and when that happens you tend to keep your unemployment levels low".

Mr Harvey noted that rising property prices and construction should be a positive influence on consumer confidence as consumers become more wealthy through owning property: "There's every reason to believe they'll become more confident and if they do then they should buy more refrigerators and lounges and that sort of thing and they should renovate their houses and so you'll get more economic activity and that will be good for not just us as retailers but everyone out there".

While extolling the virtues of the positive effect the housing market could have on Harvey Norman, Mr Harvey was quick to criticize the government over Sunday penalty rates and the $1000 online GST threshold. Trading on Sundays is loss-making for Harvey Norman, noting that the right balance had to be found between rewarding workers and the ability of the company to make money. The online GST threshold does not affect Harvey Norman as much as others due to the large size of whitegoods and household electronics, but Mr Harvey once again noted that it was unfair for Australian retailers.

Foolish takeaway

Harvey Norman is undoubtedly in a good position to benefit from an increase in retail spending but competition from online retailers will continue to erode margins and stress profit growth. Housing construction is slowly ramping up, but investors should consider whether they believe shopping will continue to move online or if Australians will instead opt to head to shopping malls to purchase whitegoods and furniture.

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Motley Fool writer Andrew Mudie does not own shares in any of the companies mentioned.

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