Monday, December 27, 2010

Don't be fooled, Australian retailers already have a fair go



Today a group of large Australian retailers including Myer, Harvey Norman and Westfield have launched a media campaign designed to pressure the Australian government to lower the GST threshold for goods imported into Australia.

I've made my thoughts on this issue clear in two previous blog posts here and here but I thought it worth addressing the points in these retailer's latest claims.

Here's the group's media statement:

AUSTRALIAN RETAILERS FIGHT FOR A FAIR GO

We represent a range of retailers in Australia with x stores, together employing xxxxx Australians.

There is an urgent need to tackle the uneven playing field created by GST and duty loopholes.

Failing to support Australian retailers will see a reduction in hours for casual workers, shifts, and ultimately cost Australians jobs in retail, manufacturing, logistics and related services.

Our Government needs to give Australian retail business employing one in ten Australians a fair go.

Under the current regime, Australian businesses are forced by the Government to charge more than their overseas counterparts when customers spend under $1,000 in Australia.

At the rate at which internet retailing is growing with mobile internet technology, the fact that offshore retailers aren’t required to levy duty or GST creates an enormous competitive advantage for foreign businesses selling into Australia. These businesses don’t pay our taxes, employ our people, train our young people or contribute to our economy.

We agree with our customers that online retailing is a wonderful convenience that is here to stay.

We currently offer our customers online services and we want to offer more but we are baffled by an Australian tax regime prepared to offer overseas businesses a better deal.

We are not asking for special treatment. The answer is to create a level playing field where the same rules apply to everyone.

Addressing each of these points in turn:
There is an urgent need to tackle the uneven playing field created by GST and duty loopholes.
When selling to Australian consumers the playing field is not uneven. It's true that Australian retailers must charge customers 10% GST and pay duties if they source their products from overseas, and foreign retailers sending less than $1,000 worth of goods to a customer in Australia don't, however an Australian retailer has the advantage of shipping the goods locally. A customer purchasing from an online Australian retailer can receive their goods within 24 hours at a low shipping cost. This is not the case with a foreign online retailer and in our experience this advantage puts Australian retailers at least on par or even slightly tips the playing field in their favour.

Failing to support Australian retailers will see a reduction in hours for casual workers, shifts, and ultimately cost Australians jobs in retail, manufacturing, logistics and related services.
As explained above the playing field is not uneven so the above statement is untrue. What will see a reduction in hours for casual workers, shifts, and ultimately cost Australian jobs is the lack of innovation coming from large Australian retailers. For too long they've operated in an environment with little competition, and they've not been focused on innovating. Unfortunately now they, they're workers and the Australian tax payer are paying the price. As a nation we should be projecting the pressure they're trying to direct onto the government back on to them.

Take a look at an ad my mum received from Myer on Friday:



This is about the peak of innovation from our large Australian retailers, "Australia's Biggest Stocktake Sale"! Whoopee! They've dug themselves into a hole with extensive discounting and they can't get out of it. Now they and Australia are suffering for it. They need to embrace the online retail space, build a fantastic experience for their customer's online and out-innovate and out-compete their competition.

Our Government needs to give Australian retail business employing one in ten Australians a fair go.

Under the current regime, Australian businesses are forced by the Government to charge more than their overseas counterparts when customers spend under $1,000 in Australia.
I agree that in an ideal world, yes the government should lower the GST threshold. The trouble is the world isn't ideal. The government has pointed out that the cost of collecting GST and duty on low value shipments would outweigh the revenue earned. To collect $30, $50 and $100 payments from every shipment coming into Australia would require a massive customs bureaucracy. Now other countries, particularly those in Europe levy VAT and customs duties even on very low value shipments, but a) their VAT rates are around 20% and duties another 10% so they're collecting more revenue than the Australian government would be and b) I've seen no evidence that they make these collections efficiently. Quite the contrary, from our experience shipping to customers in Europe it's highly inefficient and they would be incurring significant expenses to charge consumers in their countries these taxes.

To levy taxes on low value shipments to Australia, the Australian tax payer would have to pay for it. The Australian consumer would have to pay for it. No one would win except retailers. And as discussed in the previous points this isn't the solution to the problems they're facing anyway.

At the rate at which internet retailing is growing with mobile internet technology, the fact that offshore retailers aren’t required to levy duty or GST creates an enormous competitive advantage for foreign businesses selling into Australia. These businesses don’t pay our taxes, employ our people, train our young people or contribute to our economy.
As outlined above, a small difference in pricing balanced out by faster shipping times and reduced shipping costs cannot possibly constitute 'an enormous competitive advantage' by anyone's definition of that phrase. It's true that foreign retailers don't employ Australian workers, but Australian retailers don't employ foreign workers either. Why don't we try and build a fantastic, innovative online retail industry in Australia and sell our products overseas? We're an Australian retailer and half of our sales at Shoes of Prey are to customers overseas. Why aren't the likes of Myer and Harvey Norman doing the same?

We agree with our customers that online retailing is a wonderful convenience that is here to stay.

We currently offer our customers online services and we want to offer more but we are baffled by an Australian tax regime prepared to offer overseas businesses a better deal.
If you agree "that online retailing is a wonderful convenience and is here to stay" then why the hell are your online stores so bad?! Myer are headed in the right direction with their online store but until 3 weeks ago a search on the Myer website for "men's suits" returned a search result for a Dan Draper Barbie Doll! Westfield are making excellent inroads with their new online mall. Despite some initial scepticism we were very impressed with what Westfield have planned and last week launched a Shoes of Prey store in their mall (more on that in a future post). All that said it did take Westfield until November 2010 to launch a competitive online offering.

Leaving the worst until last, Harvey Norman. I can't buy a single thing from the Harvey Norman website! "We currently offer our customers online services" is a very misleading line in the above media statement. Sure I can create a wish list on the Harvey Norman website and sure I can compare products side by side. But I can't buy anything! Does Harvey Norman honestly think that's what Australian consumers want? As I understand it there are some challenges for Harvey Norman selling online because an online store may take sales away from their franchisees. That problem is solvable. One simple solution is to attribute the sale to the nearest franchised store based on the customer's delivery address. The problem is that while he appears to be coming around, Gerry Harvey still thinks "online retailing is a dead-end". I've got a lot of respect for Gerry Harvey, he's an amazing businessman who has built an amazing business but on this point he is wrong. And I don't think it's right that he and other retailers are pressuring the Australian government to do something that is bad for Australian taxpayers, bad for Australian consumers and will not have a significant impact for Australian retailers.

To summarise my points:
  • In an ideal world I agree that we should levy GST and duties on all imports into Australia.
  • The reality is it's highly inefficient to tax these imports. It would result in a net cost to the Australian tax payer and a net cost to the Australian consumer. The only group that stands to gain is Australian retailers.
  • Australian retailers wouldn't gain a great deal anyway. The problems they're facing are not going to be solved by consumers paying a little more for goods they purchase from overseas.
  • Rather than spending their money on the newspaper ads they've published today, Australian retailers need to be investing in their online offerings. Provide an amazing online retail experience and Australian customers will come back and shop with them. And they might even find new markets overseas to expand into.

If you come across these ads today and over the coming weeks, don't be fooled. Australian retailers already have a fair go should they choose to take advantage of it.

Photo by Nathan Keirn from Kadena-Cho, Japan

9 comments:

  1. Another key point: the difference in prices is regularly far greater than 10%.

    Books are a prime example, often twice the price or more when bought from an Australian retailer, and an Australian online retailer will deliver the book much more slowly than one on the other side of the world.

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  2. I couldn't agree more Shermozle. If Australian retailers want to maintain their historically very high margins they're going to have to be very good at innovating and providing customers with a unique, interesting offer. Otherwise they're going to struggle in the new, global retail market that the online retail industry is creating.

    I hope they can do it, but if they keep focusing on lobbying the government for taxation changes like they're doing now they're only going to fall further behind.

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  3. On the subject of books, fishpond.com.au which is a pure play online Aussie retailer is doing a pretty good job. they'll price match Amazon and offer free shipping over $50. It's one of the few Aussie eCommerce sites which are competitive. Their range isn't as big as Amazon, but they have most of the books I want. Also, they'll ship faster - I usually get it within a week whereas Amazon may take 2-3 weeks.

    Their are some advantages that Australian retail has such as being physically closer to the consumer. Fishpond has their warehouse right next to Melbourne airport so their product can be moved faster. This is similar to how the Zappos warehouse is located in Kentucky next to the UPS worldwide shipping hub.

    Australian eCommerce needs to adapt because when you play online, you open yourself up to international competition. It reminds me of the trade protectionist barriers we used to have, with tariffs etc... to protect local produce. Over time, the trade barriers were reduced as we opened ourselves up to international trade.

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  4. You have put into words exactly what I have been thinking about this subject and what I was saying to my Mum today. We both agree Australian retailers need to get their act together to compete on the world stage.

    I will be sharing your article with as many people as possible.

    Cheers
    Kris

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  5. Good on you for speaking out!

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  6. The other thing that is never mentioned is that the stores in other countries pay different taxes already. They may not pay GST but they still pay taxes.

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  7. You might like to add, many goods coming from other countries and imported here are Import Duty free as we have free trade agreements with those countries. So adding an import duty and a GST is not going to happen on every item, thereby delaying the goods and creating a bureaucracy which drains more money.
    I do see a drama for Australian items being sold overseas is that many will rely on Australia Post. Still waiting for something sent from Melbourne on Dec 17 and it is now Jan 4???
    What about travel agents, they have internet competition yet instead of whinging they have set about competing and embracing the internet.

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  8. Inspiredworlds - Fishpond do it very well. I buy a lot of my books from them, though since buying the iPad I've started buying eBooks which is going to be a challenge for retailers like Fishpond if the market heads down the same path as music did - moving away from lots of smaller retailers into the hands of a few big players.

    Thanks for sharing the article Kris and for your words of encouragement Saf!

    Grumpybum - That's a great point. If a US retailer imports product from China they'll pay US duties to when the complete the import. That should balance out the fact that duties may not be charged when those products are shipped to a customer in Australia.

    Onlinebuyer - Good point regarding the free trade agreements we have with other countries, that would increase the administrative burden of collecting these taxes immensely. I couldn't agree more about Australia Post posing a challenge for Australian retailers. I've blogged about that here: http://www.22michaels.com/2010/04/online-retail-in-australia-sucks-part-3.html and we've switched to using DHL at Shoes of Prey because of issues with Australia Post. Interesting point regarding travel agents, I've often wondered how that works. If I buy my Qantas ticket from an overseas travel agent do I avoid paying GST as opposed to buying it from Flight Centre (as I normally do?). That would be a major issue for travel agents operating in a low margin environment without any barriers like shipping to assist Australian retailers.

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  9. "This is about the peak of innovation from our large Australian retailers, "Australia's Biggest Stocktake Sale"! Whoopee! They've dug themselves into a hole with extensive discounting and they can't get out of it." MY THOUGHTS EXACTLY!!!!

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