Monday, December 13, 2010

The big chains are just posturing over GST threshold

As published in the Opinion section of the Sydney Morning Herald last Thursday:

The recent posturing by Myer chief executive Bernie Brookes and Harvey Norman chairman Gerry Harvey about opening online stores based in China to get around the $1000 GST import threshold is a blatant attempt to continue to limit competition in Australian retail.

It's abundantly clear that they won't act on their statements, because if they do, they'll be giving away their two big advantages over foreign retailers — cheap and fast shipping. The costs they'll face in shipping products individually from China will, in most cases, more than outweigh the saving in GST, and the longer delivery time will lower their sales.

What's more, given the terrible state of their existing online offerings, it's hard to imagine how either company could have an internationally competitive online retail offer available by early next year, as Brookes and Harvey have suggested.

They won't open online stores based in China. Their statements are designed to pressure the federal government into lowering the GST import threshold.

But doing so would be terrible for Australian consumers and taxpayers. The reason for the $1000 threshold is that the cost of administering GST on imports worth less than that outweighs the revenue the government would earn. Lowering the threshold would be a net cost to Australian taxpayers.

It would also mean Australian consumers would have to pay more for goods purchased overseas. The additional bureaucracy could also mean delays in Australian consumers receiving their goods. Nobody wins, except Australian retailers, and even their wins would be small.

Australian consumers aren't shopping overseas because they're saving 10 per cent by not paying GST. Recent research conducted by The Leading Edge for PayPal shows that the main reason consumers are shopping from overseas websites is to gain access to goods and services that are not available in Australia (32 per cent), with a much smaller group saying price is the main issue (19 per cent). A 10 per cent rise in prices for goods purchased from foreign online retailers isn't going to have a significant impact on the number of people purchasing goods from Australian retailers.

The real problem is that this is the first time the big Australian retailers have faced any significant competition. Their historical lack of innovation is being exposed now that consumers can conveniently shop for almost any item overseas.

The online retail offerings from the likes of Myer and Harvey Norman are abysmal compared with their US and European counterparts. The problem stems from the fact that until now, there has been limited competition in the Australian retail market. We have two major grocery chains, two major department store chains and, while there is a bit more competition in electrical goods, there are a limited number of high quality store locations available and Harvey Norman has most of those tied up.

Compare this with the US and Britain, where there are five or more significant retailers in each of these categories. Competition fosters innovation; for too long the lack of competition in the Australian retail market has left consumers with a sub-par retail experience.

If the large Australian retailers want to encourage consumers to spend domestically, they need to step up to the plate and focus on improving their offerings, rather than posturing in the media about lowing tax thresholds at the expense of taxpayers and consumers.

Rather than keeping their blinkers on and focusing on the Australian market, Myer and Harvey Norman should be looking at the opportunities online retail is opening up for them to sell to consumers overseas. If the federal government caves in to their pressure, Australia will continue to be left with a lacklustre, internationally uncompetitive retail industry.

Michael Fox is a co-founder of online custom women's shoe site He blogs about online retail at

It wasn't in the published article but I should add that despite shipping our shoes directly from China we haven't attempted to structure our business to avoid charging Australian customers GST. We charge GST and remit that to the Australian government.

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