tip off

Retailers’ frenzy shows they still don’t get it

The Click Frenzy online retailing spruik wouldn’t have impressed customers. And yet traditional retailers actually have all the cards when it comes to online shopping.

In the end, Click Frenzy became a victim of its own media success — the website was offline almost all of last night and even this morning. Load times to access the site were horrendously slow, making it virtually unusable. And for those who did finally access the hub they probably wouldn’t have been overly impressed.

Click Frenzy turned out to be a fairly primitive aggregator of offers (so it would have been far quicker and easier to just visit individual sites like Myer or Dick Smith), and the offers were quite limited (the only available “Camera and Accessory” offer was a printer for $10 off). The whole episode further showed how little the big retailers seem to know about online (especially since they were paying upwards of $30,000 to participate).

Traditional retailers cry poor over issues like GST when they enjoy vast advantages over digital retailers that are conveniently overlooked (disclaimer: I own stakes in various online retailers like TheHome.com.au, Pop.com.au and DEALS.com.au).

Critically, “bricks and mortar” retailers have multiple existing outlets to sell their stock. On the weekend I purchased boxing pads from Rebel Sport; yesterday they were delivered, having been sent from Rebel’s Melbourne city store. Rebel’s centralised system sent the store a message, someone pulled the item off the shelf (or from the storeroom at the back), popped it in a parcel and sent it over using Fastway couriers (for a delivery cost of about $6 to Rebel). Importantly, Rebel were holding the stock anyway. Compare that to online department stores — their stock is sitting in a warehouse in western Sydney. It creates a substantial inventory risk (and holding cost) for online retailers.

The second advantage is more nefarious: they run what is effectively a monopoly on certain brands. For example, while TheHome.com.au sells some of Australia’s leading homeware brands, there are certain brands who won’t go online. Other large online-only retailers face similar difficulties (you aren’t able to buy Sony or Panasonic TVs on Kogan, for example). Not because those brands don’t want to sell through online channels (in fact, the opposite is usually true), but they’ve been expressly told by large retailers that if they sell to online retailers they will be pulled from stores.

It’s somewhat ironic the same retailers complaining about overseas retailers not paying GST are more than happy to ensure consumers pay inflated monopoly prices on leading brands.

And then there are the barriers claimed by retailers that aren’t there at all. Take the comments from Target boss Dene Rogers, as James Thomson paraphrased in Crikey yesterday:

Take a product that costs $100. If you are an Australian retailer selling online, you add up to $10 for customs duties and excises, $11 for GST and $9 for delivery to take the product’s price to $120-130. If you are an overseas retailer selling that same $100 product, you pay no customs or GST, you pay the same $9 in delivery, such that the goods cost $109. Then you take away a 30% swing on the Australian dollar and the price falls as low as $72.”

There are several fundamental errors with Rogers’ claims. For a start, the claim that customs duty amounts to 10% of the cost price is incorrect — it’s closer to 5% and doesn’t apply to goods purchased from countries with a free trade agreement. Also, GST is not 11% — and retailers can also claw back credits for GST paid.

Second, the local retailer pays for delivery of a bulk shipment to an Australian warehouse (which would be a lot cheaper than 9% of the unit cost — probably closer to 2% as the items would be delivered in bulk on a container). The local retailer can then ship individual items from Australia, and depending on which courier they use could actually make a small margin on shipping (overseas sellers would probably lose a little on shipping to Australia). To claim delivery costs are identical for Amazon (shipping from the US) to Target (shipping from Melbourne) is wrong. (Moreover, in some cases, the items are being shipped to Australia anyway, so that initial bulk delivery cost is irrelevant.)

Finally, Rogers claims a higher Australian dollar causes the price to drop to $72 for international retailers. That’s forgetting a pretty important point — when the dollar rises, local retailers pay less for the stock themselves. The only difference is, now, online retailers pass the exchange rate benefits to the customers, whereas previously greedy retailers would just pocket the difference themselves.

Despite all the advantages, you don’t hear leading online retailers crying poor. They continue to improve their businesses, stripping away inefficiencies, improving marketing and customer service. Click Frenzy is another example why traditional retailers — with bloated workforces, huge website build spends and highly paid executives — still just don’t get it.

2
  • 1
    oliver moran
    Posted Wednesday, 21 November 2012 at 2:57 pm | Permalink

    Adam

    GST is 11% of the retail selling price

    it is 10% on the retailers sell

  • 2
    zut alors
    Posted Wednesday, 21 November 2012 at 4:29 pm | Permalink

    So this is what society has evolved into: consumers who already have enough stuff glued to their screens in a finger-jerking frenzy and frothing when they can’t access more stuff.

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