Wednesday, December 1, 2010

Australian retailers - forget about GST on online retail Imports



I've been reading with interest the debate around lowering the threshold for GST being applied to imports. At the moment GST isn't applied to imports under $1000. So if a consumers purchases, for example a pair of shoes from an overseas online retailer, no GST is charged or paid. If they purchase from an Australian retailer, like Shoes of Prey, they're charged GST.

A number of prominent Australian retailers including Gerry Harvey, and retail industry bodies like the Australian Retailers' Association and the Council of small Businesses have been calling for a reduction in the threshold for when GST is applied to imports from $1000 to $400.

The calls have come about because Australian retailers are concerned that the higher Australian dollar is resulting in increased competition from overseas online retailers. While that might be true and a reduction in this threshold would help Shoes of Prey, I don't think it's the answer or the appropriate thing to do. Cost estimates have shown that the cost of charging this GST to consumers would outweigh the revenue gained, so introducing the tax would essentially be adding an inefficient bureaucracy for the purpose of protecting Australian retailers.

There are already 2 huge natural advantages Australian retailers have in selling to Australian consumers:
1. There are no international shipping costs, or no shipping costs at all if goods are picked up in store.
2. There is a much faster shipping time, or no shipping time if goods are picked up in store.

These advantages far outweigh the 10% saved by GST not being paid on sub $1000 purchases.

The problem is not that foreign retailers have an advantage in consumers not having to pay GST on purchases under $1000, this is more than countered by the advantages outlined above. The problem is that the offer from many Australian retailers is often sub par and isn't competitive with what consumers are offered in overseas markets. Online retail is simply opening up the retail market to worldwide competition.

If Australian retailers can't compete in that space given the advantages they have with cheaper and faster shipping, they need to look at improving their offer so they can compete. We have some great innovators in the Australian retail landscape, but the lack of competition to date has meant that in some categories like our large department stores and grocery chains and to a lesser extent electrical retailers we have had only limited competition so retailers are used to living large on fat margins and aren't used to innovating. And that's why Australian consumers are shopping overseas, the offer is so much better. A broader range of products is offered, the prices are cheaper because the retailer's margins are lower, and the goods can actually be purchased online - many prominent Australian retailers still have very poor or non-existant online retail offerings.

If Australian retailers want to encourage consumers to spend at home they need to improve their offer and they should be looking at the opportunities online retail is opening up for them to sell overseas. If they don't they're missing a great opportunity and Australia is going to be left with a lacklustre, internationally uncompetitive retail industry.

Thoughts anyone?

Image credit.

4 comments:

  1. Agree, agree, agree!

    I run an online store stocked with items which are mostly imported and available from overseas online and offline stores. While I try to keep my prices comparable, I really try to work the advantage I have in having lower shipping costs and shortening shipping time, plus providing excellent, responsive, fast customer service in the customer's timezone (especially as I sell items which are sized which might need to be returned/exchanged).

    From an online retailer's point of view, I think applying GST to imports is a short-term, protectionist, knee-jerk reaction to a more competitive retail landscape.

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  2. The ARA wants to prevent free trade and promote protectionism of Australian retailers via taxation. Wake up. If you want Australian retailers to be competitive then encourage them to go online and compete globally.

    Heads in the sand
    I have witnessed the ARA over the last eight or so years pumping out press releases warning consumers about the dangers of buying online as a mechanism of trying to stem the flow of online sales - instead of actively pushing members to embrace the space.

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  3. Spot on from our perspective Michael and Phil. I can't believe all this focus on GST like it will save retail.
    The priority is to improve the online offering and TAKE A LOOK AT WHAT BEST PRACTICE IS! There are infinite examples worldwide - Zappos, ASOS, Shoes of Prey and many more. And it isn't that hard - complaining bout legacy systems and problems with franchisees is a redundant argument. There are plenty of examples and models to follow.
    Retailers need to stop listening to bad advice and actually go find some e-commerce experts.

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  4. Here here Grant. Loved ur piece on this topic on Power Retail the other day: http://www.powerretail.com.au/news/editorial-ludicrous-myer-statement-misses-online-retail-facts/

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