Mark November 23, 2011 down as an important day in Australian rich list history. That was the day that Gerry Harvey finally took his retail giant Harvey Norman into the world of online retail.
Why is it an important date? For Harvey, it may be a key way that he can make sure he remains a member of Australia’s billionaires club.
Since the start of the year, shares in Harvey Norman have sunk more than 31% and sit just above the $2 mark. The value of Harvey’s stake has fallen by almost $300 million to $630 million.
While he has private assets worth a similar amount and a total fortune of around $1.2 billion, it’s not unimaginable to think that Harvey Norman shares could continue to fall given market sentiment towards retail — over 10% of the company’s shares are currently sold short.
One way to look at the fall in the fortune of Harvey and a number of other retail magnates is that it is simply a symptom of a difficult to economy. But by looking back over the four years since the start of the GFC, another picture emerges: sectors such as retail, media and to a lesser extent property are undergoing structural changes that will have a profound effect on the rich list.
The 2007 BRW Rich 200 list represented a high water mark for many of Australia’s best-known entrepreneurs. The economy was booming, credit was flowing freely and consumers were spending like the GFC could never happen.
The total wealth on the rich list may have been boosted in the last few years by the mining boom, but names such as Packer, Lowy, Harvey, Fairfax and Stokes were never richer than they were in that year.
Let’s examine a few of those names to see how their fortunes have changed and where they might be going next. All 2007 valuations have been taken from the BRW Rich 200 of that year, while all 2011 valuations are my estimates based on share price movements.
James Packer
- 2007 valuation: $7.25 billion
- 2011 valuation: $3.75 billion
- Loss: $3.5 billion
Back in early 2007, James Packer looked like a man at the top of his game — his fortune had risen $1.25 billion in the year since the death of his father, thanks to a smart plan to separate Publishing & Broadcasting Limited into a media business and gaming business. But within two years sharp share price falls had sent Packer back to earth and his fortune slumped to $3 billion. While he clawed back to around $4.2 billion early this year, the falling market has taken its toll. The media business remains Packer’s Achilles’ heel — in this year alone the value of his stakes in Ten Network and Consolidated Media have fallen by $250 million to around $750 million. Expect gambling to remain the centrepiece of the Packer empire.
Frank Lowy
- 2007 valuation: $6.51 billion
- 2011 valuation: $4.68 billion
- Loss: $1.83 billion
The Westfield empire has undergone a period of intense change in the last three years, with the restructuring and sale of assets and a management reshuffle that has seen day-to-day control pass from Frank to his sons Peter and Stephen. While Westfield’s results have been good, the fact the stock is off 19% this year underlines how the changing retail and commercial property environment is affecting the business. Westfield’s prime portfolio will insulate for decades to come, but there is a question as to whether structural shifts in the retail sector will start to dampen tenant demand.
John B Fairfax
- 2007 valuation: $1.39 billion (listed with brother Timothy)
- 2011 valuation: $472 million (listed with his family)
- Loss: $918 million
Is there a better example of the way a structural change can decimate a fortune? When John B Fairfax led Rural Press into a merger with Fairfax Media back in late 2006, it was described as a romantic reunion of the Fairfax family with the company it founded. But as classified and print advertising shifted to the internet and advertisers were hit by the GFC, Fairfax shares have gone in only one direction. It will be intriguing to see what the Fairfax family does next. Does it have another media investment in it or has it severed ties with the sector forever?
Gerry Harvey
- 2007 valuation: $1.85 billion
- 2011 valuation: $1.2 billion
- Loss: $685 million
In the year leading up to the publication of the 2007 rich list, Harvey Norman shares soared 30% as cashed up consumers flooded to the shops. But the world has changed. Consumers have pulled back on the use of interest-free financing deals and wound back their purchases of big-ticket items. At the same time, Harvey Norman is leaking sales to the internet on small items. Is the Harvey Norman model suddenly showing its age? Will it look the same in 10 years? The structural changes in the retail sector suggest not.
Kerry Stokes
- 2007 valuation: $2.71 billion
- 2011 valuation: $2.05 billion
- Loss: $660 million
Kerry Stokes’ empire has been vastly transformed since 2007, with the merging of his media interests with his Westrac heavy machinery business and the subsequent spinning off of his media interests in a separate vehicle. But the structural changes impacting the media sector have still taken some toll. Stokes’ diversification will protect him, but it will be interesting to see how his media business changes.
Gordon Merchant
- 2007 valuation: $904 million
- 2011 valuation: $489 million
- Loss: $415 million
Special mention must go to Billabong founder Gordon Merchant, who was surfing a wave of prosperity back in 2007 thanks to the strong performance of the surfwear giant’s shares and property prices. But Billabong has been hit with a double retail whammy — not only have wholesale sales of its products slumped, but its move into direct retail could not have been more poorly timed. The huge brand equity of the business will protect it, but with its shares down 55% in the last 12 months surely the company is a takeover target.
*This article was originally published at Smart Company
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