Much has been written already about the self-serving retail giants trying to protect their monopolies under the cloak of fairness and patriotism. That is all retailers, wherever they are in the world should make us pay Australian taxes to protect Australian jobs. (Mind you this did not stop Myer avoiding a $1.5 billion tax bill when it changed hands recently through the use of offshore tax havens.)
As others have clearly shown, this has nothing to do with the gst - its the competition. These retailers already know applying gst to low value imports would not on its own stop offshore shopping with prices savings as much as 50%, but the red tape involved and delays probably would. In other words, they want to recreate soft tariff barriers for their competitors, who it turns out are their customers!
If their business is to import things into Australia, they have to be able to do it better than people can do it by themselves. This is like Jim’s Mowing trying to get lawn mower retailers put large mark-ups on lawn mowers for people who wanted to mow their own lawns.
The problem for these retailers is their business model. If you are selling products that are basically commodities, people will select on price- unless you can offer excellent service. Have you tired getting service at Harvey Normans on a Saturday afternoon?
The big retailers also have large overheads which they don’t seem to be able to convert into economies of scale. Part of this is due to high fixed costs such as retail rents and government controlled charges. These are sustainable only while people can’t buy offshore, or from local online retailers who can avoid some of these costs.
Why don’t the retailers just negotiate hard with their landlords to get rents down in the same way they do with their suppliers? Perhaps it is because their investors also have large property holdings so it is in everyone’s interest to maintain high rents. Some argue it is our labour costs. While our labour costs are higher than our Asian neighbours, they aren’t higher than our second biggest source (after China) of merchant imports, United States. The big retailers have also been ruthless in keeping their labour costs down with low wage casuals.
These retailers are like the Chicago Ice Company of the early 1900’s (a case study in a 100 MBA courses). They supplied ice to every household in Chicago every few days to keep perishable foods fresh in their ice boxes. This required a very large ice plant and an effective citywide distribution system. Then refrigerators became available which then began to destroy their market. The company reacted by trying to become even more efficient and by reducing their costs, but in the long term their business model was unsustainable.
Until the internet, the big retailers basically had a captive market. It took a lot of work for consumers to do their own market research and then import themselves. Now this can be done with a few mouse clicks and the big retail dinosaurs don’t like it one bit. They have become fat and lazy in a protected market with only a handful of competitors. They have forgotten what their value proposition was.
The opportunity for small business is to supply the service that big retailers won’t and to minimise their overheads. They also need a clear understanding of the value they offer and what they mean by “customer service”.
As for the retail dinosaurs, they need to challenge the retail rents and the continual hike in government controlled charges in the same way they pursue supplier and labour costs. They also need to understand the value they offer that will ensure their customers won’t become their competitors. This will require substantial changes to their business models, probably something that is not possible for the managers that run these businesses.
May Your Business Be - As You Plan It.
Over to You. What do You Think? Post Your Comments Below.
Dr Greg Chapman is the Director of Empower Business Solutions and The Australian Business Coaching Club and is Australia's Leading Advisor on Emerging Businesses and provides Coaching and Consulting advice to Australian Small Business Owners in Marketing & Business Strategies Planning & Systems. He is also the author of The Five Pillars of Guaranteed Business Success and Price: How You Can Charge More Without Losing Sales.
The Australian Small Business Blog