Believe it or not there is tech news going on outside CES. Actually the whole old-school retail stores vs online GST-avoiding stores battle royale is really heating up. New age retailer, direct to consumer Kogan are fighting this aggressively, not content with already being cheaper, today they are lowering prices even further.. take that !
While Myer have taken a step into the fight, Harvey Norman’s executive chairman Gerry Harvey has certainly been the stand out timeworn from the old-school of business. The guys clearly a smart man, building a multi-million dollar empire that encompasses more than 160 stores across 7 countries, employing over 10,000 employees. Problem is, things are changing and he doesn’t like it.
Arguing that international retailers are getting a free ride by trading online and avoiding 10% GST on goods under $1000. His argument is that the government should reduce or eliminate this ‘loophole’ to save Australian jobs.
Kogan’s blog post today explains there’s a big hole in Harvey’s argument, the difference in pricing isn’t 10%.. it’s more than 50%.
There is one question they consistently fail to answer – if a mere 10% GST is the problem, then why are their prices often over 50% higher than offshore competitors? Take the Canon EOS 550D camera for instance. Today, this product costs $1349 at Harvey Norman, but only $698 online. That online price is from an Aussie online retailer who has all the same GST and duty costs that Harvey Norman would. That’s a price increase of more than 93% for the pleasure of shopping at Harvey Norman.
Given that Kogan and other online retailers cut out 2 middle men in the historical chain to retail, online is always going to be hard to compete with. The new manufacturers direct to consumers model eliminates wholesalers and retailers, along with their costs and mark-up. Personally I’m a big fan of shopping online, as our hard earned dollars belong in our pockets, not the pockets of others.
On an individual basis I do feel sorry for anyone who looses their jobs, however if your someone working in retail, I think there is an inherit understanding that your job’s permanency is always questionable. Some of these people who will end up loosing their jobs in the future could potentially be retrained and work on the online store.
Right now, Harvey Norman doesn’t have an online store, the best you can do is create a Wish List, print it out and take it to the store. Gerry Harvey continues to threaten in interviews that he will mirror what other businesses are doing and setup stores in china. Kogan are calling them out on it and saying, go right ahead, they are happy to compete.
Realistically this would take a monumental mind shift from Harvey Norman. Their current business model relies on high margins to generate massive profits. Alternatively the online world is inevitably in a race to the bottom, making up the dollars in volume.
Something else that frustrates me is the insanely loud advertising that treats their customers like idiots. Harvey Norman have obviously learnt that using this technique has worked well for them over the years and continue to do so. The problem is consumers are getting smarter, comparing prices online and going in-store to get hands on, then buying for the lowest price. The only reason Harvey Norman, and others, can continue this approach is that online buyers still make up a relatively small percentage of overall buyers.
That number is growing.
Our politicians should cower to companies who grasp at old business models and certainly shouldn’t legislate because they are crying poor. If there is a valid reason why the GST exception on international goods should be reduced, then lets have a debate about it, but as yet, I’ve heard nothing at all that resembles valid reasoning.
Gerry Harvey has now backed down from his campaign to have GST applied to online / international goods. Read about it over at SMH.
It seems news reports this morning were a little too quick to call this fight over.. Gerry Harvey now says he’s not backing down and will continue the fight. Read more on ABC News.