Patrons don't buy it

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This was published 13 years ago

Patrons don't buy it

By Shaun Carney

Retailers got one heck of a shock at the furious customer backlash to their campaign for a GST on online purchases.

Which team suffered the bigger defeat this week: the Australian XI at the SCG or the group of major retailers with its ill-fated campaign to bully the federal government into making consumer items more expensive by whacking the GST on imported goods bought online? Surely it has to be the retailers. There were so many things wrong with their campaign that it's hard to know where to start.

Digital image: Judy Green

Digital image: Judy Green

The busiest time of the year for the big retailers, in terms of foot traffic through the stores, is the four-week stretch that straddles Christmas. The first half of that period is due to tradition - the need to buy gifts - and the second half is down entirely to choices made by the retailers, because that is when they have their biggest and most heavily promoted sales.

The key message the retailers were trying to sell in this week's public campaign is that they are being hurt and their profitability is endangered. Why would they decide to put out that message right at the time of year when the greatest number of shoppers are fighting for space and attention in the shopping malls and city centres, and finding themselves in long lines at the cash registers whenever they've bought something? The retailers look prosperous, not threatened, when so many of us are handing over our hard-earned to them.

And then there are the sales themselves.

Harvey Norman chief Gerry Harvey has expressed genuine shock at the vicious public response to the campaign, and it's clear that the retailers have been shocked to learn just how unpopular they are with many members of the public, including their own customers. But surely the modern practice of these massive twice-yearly sales provides some answers.

Consumers feel manipulated. Shop windows in Melbourne's CBD are festooned with signs for sales of up to 50 per cent off. Shoppers quite correctly find themselves wondering just how fair dinkum the pricing regimes are. If the stores can cut a third off the price of a standard item this week, why couldn't they do it a month ago?

A well-known brand of men's business shirt that retails at one of the big department stores for most of the year for $109 can be bought right now for $68. This particular item is subject to the same seasonal price fluctuations every year. That is just not right. If the store went about it differently, and split the difference on that shirt and sold it year-round for, say, $80, its total take on the item would probably be the same and the shoppers who bought it outside the sale times wouldn't be left feeling like mugs.

The retailers need to start thinking about these issues because what this episode has proved is that, thanks to the pervasive nature of digital information technologies, contemporary consumers are vastly more savvy about what goods cost and how they can be obtained. And as a result of that knowledge, public scepticism about local retailers runs deep. Even allowing for the differing economies of scale between the United States and Australia, the discrepancies between the prices of many ordinary consumer items suggest unacceptable mark-ups at this end.

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Compare the prices of sunglasses on amazon.com and the major retailers here, for example. Or consider the real cost of imported running shoes in Australia, which can be as low as $10.

What the public has also figured out, and which the retailers curiously have not, is that globalisation is a relentless process that will swallow up any business that tries to stand still.

When modern globalisation, propelled by greater computerisation and freer trade arrangements, started to pick up pace 30 years ago, it accelerated the substitution of Australian manufacturing output with cheaper imported manufactures.

The major retailers did not bother to mount public campaigns calling for government action to stop the trend. Instead, they celebrated globalisation and raked in the extra profits. It's only now, with online shopping starting to spread across the community and affecting their own bottom lines, that they profess to care. That's why their argument for the $1000 GST threshold in imported goods bought online to be lowered because the current exemptions threatened local jobs sounded so hollow.

The fact is that the internet is catching up with Australia's big retailers, who have had 15 years to get themselves together for the online age and have so far failed to meet the challenge. The $1000 GST-free ceiling has been in place for six years!

It's been a heck of a mess. Even so, no matter how badly conceived and executed this week's public campaign has been, the issues are not as cut and dried as the retailers' critics have made out.

Some big stores do take extra steps to try to source from local suppliers; Harvey Norman, for example, discriminates in favour of Australian manufacturers for some of its larger items, such as furniture. And the concern about micro operators purchasing multiple inbound shipments of goods, all of them just under the $1000 threshold, and then on-selling the contents GST-free is legitimate.

Indeed, it's difficult to come up with a rational, rock-solid case against applying a GST to most imported items bought online. The GST is a consumption tax, after all, and the way a good is purchased should not determine its taxable status. In any event, the price differences on most basic consumer items are so substantial that they would still be much cheaper online even if they were hit with a 10 per cent GST slug.

But the valid elements of the retailers' campaign have been lost. Just why they thought they could put one over the government is a mystery. It was only last month that Assistant Treasurer Bill Shorten, in response to agitation from the retail industry, referred the matter to the Productivity Commission, with a report due at the end of 2011. The retailers got a powerful message from the public this week, the same one that all internet-exposed industries, including the media, have received: do better, provide more value, or get out.

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Shaun Carney is Age associate editor.

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