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Band-Aid Solution to Protect Prices in Online Retail

needle and thread

Overseas brand suppliers want to ‘stitch up’ Australian consumers by restricting international online retailers the ability to sell here, but this out-dated method of price protection simply won’t work.

In March I wrote my thoughts on the perception of online discounts, that, from an industry-wide point of view for online retail in Australia, it may be a bad perception that hurts future investment in the industry and some products.

It was with great interest that when I opened the paper this morning – yes I still have one delivered – I found an article on the front page of The Age entitled, ‘The beginning of the end of web bargains’ followed by, ‘Importers close door on overseas online stores’. Venturing online to view the interest in this article, I discovered that the piece had been given the prime real estate position for news articles, accompanied by a new heading  ‘Web shoppers stitched up’ and that by 9AM over 190 comments were associated with it. Serious interest indeed.

Aside from some very emotive headings and subheadings, the article explains that importers of certain fashion brands are reaching agreements with international labels to charge a higher fee to Australian web shoppers – or to not supply them at all. The obvious winner is the traditional retailer, obvious loser the Australian consumer. But this style of prohibition and price raises a question regarding whether it is a sound business decision. Will it work? By work I mean will more jeans be sold by traditional retailers here in Australia? Because that can be the only intent behind this move by importers.

Importers argue that the government’s unwillingness to act on lowering the GST free threshold has forced them into this position. The reality will be that the price hikes a demanded by importers will be more than just the 10 percent GST. This certainly puts the tax-free threshold argument on thin ice. The other issue rearing its ugly head in this situation lies with the traditional retailer and those involved with bricks and mortar retailers. Their inability to embrace online, and their inability to use new tactics and ideas to try stay relevant in today’s modern online world makes this recent move appear more backwards than forward.

This position by retailers and importers to protect business isn’t a new one – tariffs by various governments have existed for years, cartels operate in several different economies and in numerous industries – but the difference in modern retail is that almost anything is possible with online. There are no borders. The move from these importers will actually open up new businesses and services to assist the savvy online shopper.

Currently, PayPal operates a business called HopShopGo to great success – a business that gives Australian consumers a US based address, and more importantly gives them the ability to have items delivered from places they would not usually be permitted to. This works by having items purchases to a permissible address, before having the item forwarded to the non-permissable address. The retailer, and subsequently the suppliers, never find out the final location that the item is delivered to.

This manoeuvre by PayPal to create HopShopGo is intelligent business, banking on the Australian consumer’s desire to purchase  brand name items at better prices, as well as getting access to a better range of products that US sites offer. And HopShopGo are not alone. Currently I am aware of at least six others who operate similar services. They exist because retailers and importers locally are never going to be able to continue to operate as they do today.

In The Age article Mattias Friberg, Director of a business that imports brand name jeans, described the recent move as, “the best ‘Band-Aid’ approach to stop the flow of sales going offshore”.

I couldn’t agree more. It is a band-aid approach and shows a lack of foresight, a lack of awareness of the savvy online Australian consumer and it lacks new thinking.

Local retailers could sell more products online by allowing in-store pickups, by offering iPads in-store only connected to their site to order from an extended range of products, or even allowing consumers to purchase from US or UK sites – but making pick up from store locations. This way, local businesses can offer superior service and advice – and these local Australian angles should be pushed more by retailers.

By increasing price on some branded products and stopping the online consumer from buying their desired product at the first attempt will only further send business to services such as HopShopGo, and alienate Australian retailers.

5 Comments

  • Chris,

    I think you’ve hit the nail on the head in pointing out that it won’t work because there are already options such Hopshopgo that will allow people to easily get around it.

    All this decision will do is create further business opportunities for companies like Hopshopgo to flourish.

    As you correctly point out, the decision also shows an incomprehensible lack of understanding of the online marketplace. That they even think this has a remote chance of working speaks volumes about their ignorance.

    There are also plenty of other things they haven’t considered.

    1: Taking this action will do irreversible damage to their brands. Within hours of this story hitting there were thousands of comments on the SMH site condemning it. This backlash will continue. (Didn’t anyone learn anything from the Gerry Harvey backlash fiasco?)

    2: Most of online spending does not go to overseas retailers. More than 70% of it goes to local Australian online retailers, so their base argument is incredibly flawed.

    3: Online retail only accounts for between 5-8% of the total retail spend (depending on whose reports you use) so in the total scheme of things it’s not a great amount.

    4: Increasing the price by 2x and in some cases 5x doesn’t mean the consumer is actually going to turn around and buy the product from them at the higher price. That’s basic economics, higher prices equals less customers. It’s pretty appalling when a retail organsation has no grasp pf basic economics.

    5: The international fashion brands will only stick to this agreement for as long as it suits them. If there is a social media sh!tstorm that goes international and starts to tarnish their companies’ international brand and bottom line, then they will drop it just as quick.

    6: Local retail’s problems are nothing to do with the internet. As long as they refuse to address the more fundamental problems facing the industry they will continue to suffer.

    Reply
    • Chris Morley
    • 11th May

    Thanks for adding a supportive comment Mark – the additional 6 points are bang on the money. It is frustrating that as someone involved and passionate about eCommerce like myself and you too Mark – that we are the first point of call when it comes to blame for others trouble; fingers are pointed in our direction when job losses occur and sales plummet. What would be terrific to see would be new ideas, innovations and collaborations that get these business on the front page of papers for the right reasons; not just moaning about online. Traditional retailers need to give consumers a reason to come and spend – not just blame online.

    Reply
    • Amy greenaway
    • 12th May

    I have news for those distributors/retailers who will ban us from buying their products overseas. I will ban myself from purchasing your products in Australia. I can always buy another product. You have to remember we don’t need products we want them and we can change our wants or live without them. You didn’t think this one through very well because you lose out not us.

    Reply
    • Paul
    • 14th May

    You gotta worry for the future of this country when hundreds of fools think this is a contravention of trade laws, or blame Australian retailers for sending manufacturing offshore. Those same ones who blame the retailers for sending manufacturing offshore think everything’s a ripoff and they want everything as cheaply as they can. Who pressured it offshore?
    The lack of understanding in this country for the ramifications of no retail industry is staggering. Including from the authors on this site. Do you think that if an Australian business (which generally requires bricks and mortar to access stock from major brands) sets up a website you guys think is good the prices will miraculously drop 50%? And at the same time they still have to maintain the bricks and mortar AND pay Australian wages and costs.

    Reply
    • bluey
    • 21st May

    how does an overseas brand become desireable? usually there is a lot of money and years spent building a brand. who pays for the building of that brand in Australia? if the brand does not have its own presence in Australia then it will be the Australian distributor and/or stockist who builds the brand. even for a small brand, which are the ones who are less likely to have their own Australian presence, this can run into tens of thousands of dollars to get it established in Australia through advertising, promotions, stocking the brand in multiple locations at retail floor space rental prices, etc, etc.
    if there is no protection for unaffiliated distributors or stockists then what incentive do they have to build the brand?
    and if the brand is not promoted locally then who is going to know about it?
    and if no one knows the brand then why would they want to go online to shop for it overseas?

    Reply

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