The introduction of the carbon tax on July 1 is already putting retailers in a difficult position. Retailers say they will have no alternative but to pass on increased costs to consumers, or be forced to cut staff, as running and manufacturing costs jump.
Retailers are looking for new ways to reduce carbon footprints and increase sustainability, Australian Retailers Association executive director Russell Zimmerman told Crikey. But they do not support the introduction of the tax.
“Retailers and businesses need incentives and assistance to reduce their carbon emissions, not a heavy-handed carbon tax which will ultimately hurt the sector and will mean disastrous economic impacts for Australian retailers,” Zimmerman said. “Retailers have repeatedly indicated their concern about the impact of a carbon tax on prices and business inputs.”
Myer spokesperson Jo Lynch told Crikey the department store believes reducing pollutant emissions should be part of the global effort toward improving the environment. As Myer’s key sources of emissions are through transport services and electricity consumption, Lynch says higher charges will be passed on to consumers through an increase in prices where cost cuts and reduced services are unsuitable.
Get Crikey FREE to your inbox every weekday morning with the Crikey Worm.
Retailers are at the end of the supply chain, Zimmerman corroborated, so cost increases down the line fall to them and force up rack costs.
Direct cost increases to retailers are a result of the sector purchasing 1.4% of electricity generation and 2.4% of the gas supply, according to a Choice report. As the electricity and gas industries pass on their cost to the retailers, the retailers will pass on that cost to the price of goods.
As an example, according to Choice, the cost of footwear will increase when the manufacturing costs of chemical nylon and synthetic fabrics, iron and steel adornments and shoe reinforcement, as well as electricity costs, are passed on to retailers. If all costs are passed on to consumers there will be a 10% increase in the price of goods.
“Labour is one of our core costs, and as such, it is hard not to see an adverse employment impact as the cost impacts materialise,” Lynch said.
Students and working parents in need of flexible hours are in threat, according to Zimmerman, as the implications of the tax will also filter into dependent industries such as manufacturing and food and beverage. Retail is Australia’s largest private sector employer, and Zimmerman says it is directly responsible for one in 10 jobs and indirectly responsible for one in seven.
A Westpac Market Insights report last year agreed consumer confidence is dampened by the lack of job security, with firms facing increased savings rates, the high Australian dollar and sectors dependent on interest rates. Lynch says increasing pre-tax utility costs and uncertainty of compensation continue to impact consumer confidence.
“While we acknowledge the compensation packages proposed by the government, we do not see how the compensation regime set out by the federal government will address these consequential impacts,” she said.
Many households will see compensation outweigh their living expenses. But retail conditions are tough already, Zimmerman says, with consumers facing interest rates, high costs of living and other taxes and levies.
“There are too many households that will miss out on any compensation at all, as a result of an estimated $9.90 increase per week in the cost of living,” he said. “Tax cuts averaging $10.10 per week for only 40% of households leave little margin for error and don’t go far enough to absorb other costs people will face on top of household and utility costs such as the cost of consumer goods.”
Price sensitive consumers will cut down on consumption, affecting certain categories depending on their benefit to the buyer, Curtin University consumer behaviour expert Doctor Rajat Roy told Crikey.
“Within some product categories in which consumption is driven by emotion and social status, consumers are to a certain extent price insensitive, meaning they may still buy the product if the price goes up,” he said. “If the value notion is unaffected by price increase, consumers will still buy the product. However, if the relative benefits remain the same but costs go up, it might affect demand.”
According to David Jones’ 2011 annual report, the cost of doing business is 29% of its sales, with sales revenue down by 4.4% from the 2010 financial year. It says there’s been a 50% increase in household savings between December 2009 and March 2011, attributing interest rates, natural disasters, European financial uncertainty and declines in the equity market to the downturn in consumer spending.
Similarly, Myer’s 2011 annual report saw a 3.8% decrease in sales, with a revenue decrease of 3.6% standing at $162.7 million. Chairman Howard McDonald stated in the report: “Consumer confidence was impacted by increasing cost of living pressures including costs of education and health care, new taxes in the flood levy and proposed carbon tax and interest rate uncertainty.”
Due to the carbon tax’s political ties, Deakin University consumer behaviour expert Doctor David Bednall said consumers would attribute any price rise to the tax before adjusting their energy usage and moving on.
“As time goes on, normal circumstances would suggest they would then adjust to it in the same way they did to the GST,” Bednall told Crikey. “However, given that the government that introduced it is hugely unpopular, the opposition is likely to tie this unpopularity to the carbon tax, so I can see it remaining prominent until at least the end of the year.”
Queensland University of Technology retail and consumer expert Dr Gary Mortimer says fears of manufacturers moving offshore are largely unfounded.
“Most of the apparel and clothing merchandise we sell is already manufactured offshore and you can’t move primary industries [such as growers] offshore,” he said. “The alternative debate is that government credits will offset the costs.”
Australian companies will review their business models to increase efficiency under the carbon tax, Zimmerman says, with the compounded effect of pressure on the industry forcing retailers to reconsider the cost of production in Australian.
“The carbon tax will affect the retail industry as a whole, whether it be online or in store — online is just another innovative part of the overall retail shopping experience,” he said.
In an effort to increase sustainability, Myer reports it has incorporated environmentally-friendly designs in its new stores to address mechanical, hydraulic and electrical inefficiencies. “The identification and implementation of energy efficiency initiatives continues to be a focus for our business,” Jo Lynch said.
May 2011 saw the retail giant upgrade its lighting by installing more energy efficient models, requiring less maintenance and bulb changes. The projected energy savings are over 13.4 million kWh in energy annually, with a CO2 emissions saving of more than 198 million kWh.
Myer has also implemented ongoing waste management programs to reduce its carbon footprint, including reuse and recycling programs for paper, cardboard, plastic, toner cartridges, hangers, security hard tags, e-waste and textiles.
“We are focused on measuring packaging waste associated with our Myer exclusive brands, and taking steps to either eliminate or minimise waste by optimising re-use and recyclability of packaging principally through modification of packaging design,” Lynch said.
Last year the department store submitted a Five Year Action Plan to the Australian Packaging Covenant, another measure to reduce its carbon footprint in preparation for the tax.