Analysis on GST for online purchases
Recently, Australian retailers launched an advertising campaign urging the government to impose GST on all goods bought over the internet. First of all, this has many issues from logistics to fraud detection.
Besides the obvious issues executing this proposal, I would like to specifically look at a long term solution for Australian retailers. Online sales no doubt are eating into the revenues of physical retailers and this will only continue to grow in the near future. However, physical stores and online stores are vastly different and can compete in very different ways.
Physical stores have the luxury to offer their customers to try out goods, advise on purchases, provide after sales support, allow buyers to feel the products and provide value added services to customers. However, this comes at a higher cost structure in terms of real estate, facilities and staffing costs. Online stores, on the other hand, offers lower cost structures leading to cheaper products, delivery to door step, shopping from home and time saving. Depending on the product and personal preferences, consumers will elude to the channel that suits them better.
Yes, government regulation on GST could help but the price savings online is normally more than 10%. I feel that this proposal is a short term tactical solution. I feel that Australian retailers can do a few things to improve their competitiveness in the market.
1) Increase their value added services in their physical stores. Services like pre-sales advice, shopping/customer experience and after sales support can help to increase the desire to shop in a physical store as compare to some of the online shopping nightmare.
2) Multi channel retail. With a trusted brand name, physical retailers can extend the experience to the comfort of consumer’s home. As of today, none of the major retailers in Australia have a massive online presence and ecommerce capability. They are losing the online retail battle to cheaper overseas alternatives. Such big name local physical retailers could also then reach out to consumers around the world as well.
3) Get into an arrangement with manufacturers. Manufacturers have only one aim which is to move as much of their products out to consumers as possible. Many products in the market requires some kind of touch and feel before making a purchase. Physical retailers can negotiate a lower price for products that are sold at a physical store as they provide a better service for the end consumer. They could even go into a special agreement for a specific period where heavier promotional emphasis is placed on a specific product. Therefore, it doesn’t really matter if a consumer goes into a shop for advice and buys online after that. Manufacturers have the incentive to do this if they are interested in controlling the price of their product as part of their pricing strategy.
I feel that such steps will improve the position of local retailers and they need to pull up their socks and fight this battle. Even though price is a big factor in a buying decision, there are many other very important factors as well.
Eric Chang said,
Hey Sean,
Your analysis is incomplete. Your opening paragraph talks about logistics “through to” fraud detection but you didn’t talk about fraud detection.
The retailers are kicking up a fuss because they’re looking at ways to increase their revenue and this is just one mere way of doing so.
Indeed online and physical stores are vastly different and their target market is actually different as well.
You’ve got the mums and dads who won’t buy online unless they’ve seen the product and trust the brand, through to young Gen Y’s where everything is about price and online deals (note all the one day deal sites popping up).
At the end of the day, if retailers want to compete in the online market, then i think they should indeed make arrangements with manufacturers/wholesalers/dropshippers. At the end of the day, i’m sure 99% of the major retailers’ products are from international waters, so they could just as easily have a white label online shop that sells products like a dropshipper directly from overseas and have their funds earnt overseas and diversift their market and avoid paying GST.
Matt said,
I think its great that we can participate in the global market. No longer are we held at ransom by market manipulators/power brokers.
Today I bought US only items from Amazon at 67% discount of Aus pricing and shipped to Aus using a postal fwding service. Cost me 8 bucks.
Tonight Ill watch a US itunes movie ill rent, or perhaps ill stream some US netflix.
As I type this Im listening to Pandora One.
I havent bought any meaningful item from a bricks and mortar store in the last 24 months.
The world is changing and I just hope the Australia people / government doesn’t get suckered into propping up these lazy traditional operators.
my 5 cents
Sean Lew said,
@Eric, you have an interesting perspective the re the dropshipper / white labeling. I do see some issues like branding, support and warrant but that requires more investigation.
@Matt, nice to hear from you. Hope you had a good break. I am with you on this. I really do hope that Australia people and government doesn’t get sucked in. I have bought most of my stuff last year online and that includes stuff like business suits and couches.
Retailers need to improve efficiency, marketing effectiveness, reduce costs and have effective campaigns. They talk about buying overseas is un-Australian. But if Australia is not competitive in the global market, there will not be a Australia to be un-Australian in future.
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