Very insightful article. There are so many points to consider on both sides of the debate! Certainly in the cosmetics industry, the price of quality makeup is prohibitive in department stores so it makes sense that women head online to get what they need. But there are plenty of Australian online retailers who have been around for a number years like Fresh Fragrances. I have to agree though, for savvy customers, shopping online is going to be the way of the future.

great article. certainly as prices become more transparent, websites become easier to navigate it will become difficult to maintain these margins. However as we all know the major competitive advantage we hold over our international counterparts is delivery. Pick up in store, same day or next day delivery. So play to your strengths and your consumers emotions.

Let's also not forget about the cost for Australian businesses to ship internationally either, this is a major factor why we simply can't take it to other international companies.

Infocentral.com.au
Retail Solutions

Completely agree that retail pricing is over the top. Completely disagree on causes and solutions.

Today's market is driven by a strong deflationary expectation amongst consumers. This is fueled by reducing production costs and difficulty getting any product differentiation aside from price. A race to the bottom.

Add to that an outdated distribution channel. All manufacturers today could run a local sales office / agent model with direct shipping from the factory (in China, India, Vietnam, etc) to the retailer.

That's all fine and would lead to significant reduction in price at retail, but the shop floor, wages, and rents are all geared at the moment to the old model. Even this should be reduced to a showroom for most items with instore kiosks for purchasing (there's lots of reasons for this - too long for a comment).

Prediction: much pain while retail outlets and consumers adjust to the new models.

You know what everyone..? we can debate it till the cows come home. The internet is not going anywhere, its hear to stay so we have to learn to adapt and evolve Or....get out.

Retailers - losing customers to better prices is one thing, losing them due to poor service is completely something else. I was ignored in 5 retail stores today in Bondi, Yes 5.......IGNORED!! Really?? you can afford to IGNORE? Shop floors should be ecstatic about running at a competent customer service level.

The pendulum has swung completely one way here with online sales. Its not the end of retail at all, Its the start of smarter retailing with customer service as it's core.


Barry
barlanconsulting.com.au

Enough of the retailer bashing! I am a one-store independent fashion retailer and I am so fed up with consumers accusing us of ripping them off. Like most small independents, I pay whatever I have to from the wholesaler and mark up conservatively according to that price and my overheads. Oh ... and I would like to take home at least a small wage too if that's okay! I do not price as high as I think the market will bear. If anything, I sometimes cut my regular margins when I know our rural community is struggling with drought, low milk prices, etc.

Internet sales are a concern but I don't know what the answer is. I very much doubt that Australians would be happy to lower their wages, government benefits and lifestyle expectations so that they can have lower prices in stores.

A real life example for you - the baby wear shop opposite me is currently having a closing down sale. She offers good quality merchandise, great customer service and reasonable prices, yet she is not taking enough through the register to sustain the business. On day one of the sale all the vultures were out, picking over the carcass of her livelihood. 'Why are you closing?' they asked. These were the same people who had never even been in her store before and, worse still, had told her in the past that they mostly bought off the internet now (how insulting for any retailer to hear). Now they are all saying how sad it is that our town is losing another business!

Enough ranting from me. At the end of today I will drive to my modest home, in my 12 year old car that desperately needs replacing, sit down in front of my computer for more hours of paperwork and try and remember how lucky I am to be my own boss who - according to consumers - is getting rich on their dollars. (Actually I love what I do, but please don't tell me I'm ripping you off!)

Service? Anyone who has been to a Bunnings, David Jones, Myer, Woolworths, etc, etc knows all too well that there IS no service in Australian retail. Service levels, hoever, on the internet are significantly superior SERVICE with many companies like Kogan offering online chat, effortless return policies and full product reviews for all their products.

Brad Coates says "The average shop assistant's wage in the US is anywhere from $2.50 to $7.25 an hour." That's ridiculous. The US Federal MINIMUM wage is $7.25. The AVERAGE retail shop assistant's wage in the US is $13.17, not much different than Australia. Let's get our facts right.

Service, one word and it means everything

l agree things are changing, but as stated retail jobs are going to vanish and where will those people get jobs to earn money to spend money?

l manufacture footwear, the tariffs where dropped to reduce the price of footwear, it did short term, but once most local manufacture closed down, then the importers got greedy and out their prices up.

Same will happen with online once the retail dies out they, the online people will bring their prices up and you wont have a choice

Right on Peter - well said. Except the new airports - as once we hit the massive recession from all the retail job losses - no one will have the $$$ to buy online!!! John S has great points also. Change is coming, no doubt. Great reading.....

GAZOOM - Read the comments below and you might understand how these prices come about - it's a worry and yes things will and need to change - but it isn't gouging within the industry I am in. On the car front you will find it's our import duty's that make them so expensive! The shoe's will be direct from the supplier - so only 1 margin in there - when u buy them here the distributor needs a margin - hence the massive difference etc etc

Emma - you need an accountancy course.... No one is arguing the prices are higher - but the fact is - once again - majority are NOT gouging! How did u come up with 50%??????... And in my industry the retailer is bound by RRP's set by the wholesaler - so your blanket statement of the retailer asking for the price they want or think they can get has never been the case with us!

There are always going to be people ripping people off - no doubt - All I am saying, once again is that it isn't the majority price gouging!

Andy, you're absolutely correct in saying "the world is becoming one market for goods". But have you thought about where that leads?
Consumers in Australia, in the long term, can only enjoy the worlds average price if we are also prepared to accept the worlds average wages, and the worlds average tax regime. That will mean lower government services, and lower personal incomes. I'm in the retail footwear business and I can tell you that there is $25 of taxes (in all forms) imbedded in the retail price of ever pair we sell - and that's far more than the GST. If people buy offshore that is jobs and tax revenue lost to Australia. Our government ought to be passing a "personal imports tax" law that makes a consumers choice of where to shop revenue neutral for Australia. That will require a tax well about the GST - a flat rate of $60 per parcel will do the job and be cheap to collect via Australia post, DHL, Fedex etc. Failure to do that will see massive unemployment in retail shops, and our Government needing to build more airports for freight aircraft.

Um, Damien where in the article does it say "All distributors are ripping people off?". You did indeed miss the point. And your point about international pricing is one of the issues Stuart advocates.

The 2011 Productivity Commission report submitted to government recommended lowering the threshold once the costs of implementing were lowered to make it worthwhile. The arguments about where the problems are are well documented. On the one hand Australians want all the benefits of world's lowest prices for everything. The cost to society of that is also accepting a US minimum wage well under half that of Australia, no healthcare, diminished education, infrastructure, superannuation etc.. It also probably needs some 45-55 million people in the country to get somewhere near the economies of scale we need to lower prices substantially. And we need retail and office rents at US levels, in many cases under 1/3 of those paid in our State capital city business HQ's. A high A$ roughly double that of late 2008 and double digit unemployment throughout Europe and most of the US is throwing up desperate businesses and prices to match. Of course there are many areas global suppliers have been adding over-the-top pricing to countries who would pay. But the Internet is changing things and ALL players have to lift their game. Wholesale in most sectors is. Exceptions can be found anywhere. Retailers can do more too, as can landlords, unions, and government red tape and government inaction on GST thresholds. It's a holistic system. All of it has to change before real long term lower pries can be expected that are sustainable.

To say I am missing the point is ridiculous. I can see why some customers think they are being ripped off. If a customer can see a pair of running shoes on a UK site for $60 including free postage when they are $120 here, (actual example) of course they are going to go o/s. But your argument is inherently flawed in that you only looked at small, easily shipped items. Go and buy a fridge online from the States. Not very likely are you?
A large part of the problem is the that most manufacturer are too short sighted and don't set standard international pricing when they first launch a product. That and the slowly disappearing distribution model. I do have some suppliers who are intelligent enough to set internation pricing, but they are few and far between. however to say all distributors are ripping people off is insulting. I invite you to my office and I will have my accountant show you my books to demonstrate that with not even a 40% margin you will still be able to source some of my products cheaper overseas. They will not meet local standards, they may not even work due to varying voltages. The imports may even injure your child due to not being modified to suit our conditions.

The almost hysterical responses to this article are, I think, typical of the larger malaise affecting the Australian retail supply chain. It's as if they believe that shouting loud and often will turn the tide. It won't. No more than King Cnut could. Don't shoot the messenger boys. Stuart is simply stating the facts and we all know that at some level.
We all know that the arguments put forward about local overheads can only account for at most about a 50% increase in the retail price. The rest of the 150 - 400% is price gouging.
We all have to acknowledge like Stuart said that the "Glory Days" are over.
When I first got into retail I had this incredibly naive notion that you set prices by adding overheads to the cost of the goods and then added a reasonable margin for profit. We all know this never happens.
Anyone with any experience in retail will tell you that you set the retail price at the highest possible point the market will allow. Notwithstanding of course, the pressure, both subtle and blatant by distributors and wholesalers to fix retail prices and control the market.
We were all part of it. We all went along with it because we knew there were no easy ways for consumers to compare prices they were paying with overseas and no way to buy from overseas. Apart from a few US mail order houses that shipped internationally. People paid the price if they wanted it. They had no choice.
Then the Internet happenend and suddenly we were all caught out. Now Australian consumers know they have been and are still being dramatically overcharged.
Collectively, we need to address this reality and stop screaming and yelling hysterically about it.

Yes, the examples given are extreme, but Stuart is right in the point he is driving. The internet has made pricing transparent and consumers are taking to the net to shop in droves. Whereas wholesalers have brought their goods in and sold them to retailers at the price that Australian consumers would tolerate in the past, they will now come under pressure to get their pricing to be internationally realistic as the retailers are already doing; JB going the parallel import route has set the precedent and more of us retailers will be going that route if we cannot source goods locally at competitive pricing as we need to survive. The days of portable appliance wholesalers bringing goods in at a wholesale margin of 55% on their landed cost are gone! they need to decide whether they want to play with realistic margins in this bold new interconnected world, or wither and die as they get circumvented. We live in interesting times.

Beware The Ides Of March
My experiences to date and if someone can logically explain why then I will shop in Australia:
1. Shoebuy.com - New Balance half of the Australian shop price but try and get a pair of Sebago. They are not allowed to export these to Australia. Why you ask, because the Oz price is 3 times that of the USA price.
2. New Car - bought a LandRover Discovery 4 late last year.....Oz price $80,000, RR in the USA $42,000 (without a deal). Now I am totally confused because I here all the unions saying that we have to have protect our local car industry. Geez if this isn't what is.
3. Boat parts and accesories are half price to those sold here and let me tell you are delivered quicker than the local product.
4. Car accesories for the new car.......bought them all online from China/USA at a quarter of the price they were from Land Rover accesories.
You can't tell me that a factory has been set up just to make mud flaps for Land Rover Dicoveries....they are identical to the manufacturers so go figure.
5. Choice and availablity. Go shopping for mens shirts and see if you can get your particular collar and sleeve length outside of normal. Retailers of all ilks in this country have treated the consumer with contempt as they have not given them the choice of range etc. and in an effort to boost profits have reduced stock holding. How many times have we all been told oh we don't have that in stock but we can get it in for you. To bloody late I will go on the net and get it myself.
6. Not all stuff is coming in from overseas you paranoids. Ebay has led the way locally for sometime and now you can get a hell of a lot from local suppliers but here we go again. Just to let you know that there is a mind set in retail Australia, many Oz internet retailers are charging the same price as in their shops ......whoa boy, no rent, cheaper wages etc etc etc and we pay the postage, there you go again treating the Oz consumer with contempt and I am telling you to pack up now cause you ain't goin to be in business for long. The day of retail reckoning is at hand and long live those retailers in Oz that are doing the right thing.

Stuart congratulations on a great article! I am a large home appliance retailer in Perth and can tell you that you are 100% correct. I can assure you and the readers that in our industry our manufacturers ( and government ) are ripping off and desecrating our retail market. I had a recent example where a lamp(globe) was needed for a projector for our customer we quoted our customer $599 which showed a profit margin of $100 and we could supply in 2 weeks the customer purchased on line including postage for $199 and recieved it in 3 days! What a disgrace ! We lost a sale $100 profit and Australia lost around $60 gst ! More importantly we have lost a customer who thinks we tried to rip him off! I believe the suppliers engage in affordability of regions in other words they decide what the market will pay per region! They are on notice as retailers like myself will now consider parallel importing. I wonder then if the government will then consider looking at the GST! Thanks again for the article.... Peter in Perth.

The key inference in this article, that we "the wholesalers" are taking excessive margins that place pressure on the retailer and dont allow them to compete with OS internet shopping is just plain WRONG.
As a long term supplier to the appliance and computer retail sector we are continually pushed for lower prices and higher rebate allowances that,when we do relent, the retailer generally passes stright on to the consumer.
There is no mention in this article of the complete dire straights that the retailers in the USA and Europe are in. In our category the online prices offered over the recent Christmas period were well below our ex-factory cost and well beow the ex-factory cost of the US retailers that were advertising. With high inventory levels and no customers these retailers are looking for sales world wide ät any cost".
If Australia throws their support behind these retailers today we will decimate our retail market to the extent it is in the USA and we will not have a supply nor retail base when reasonable times eventually return. Do you really think that the amazing value offered from the USA and Europe will remain once their local customers return. Buy at your own long term peril!!!!

Not game to publish my comments about outsourcing your journalism overseas hey?
Mr Bennie calls himself a retail consultant, what are his qualifications and who does he consult?
How about getting out and speaking to some of the smaller retailers, report their ideas on merchandising, local advertising and innovations...I think we are all getting a little tired of reading about the majors and Advertising PR.