Last month Assistant Treasurer Bill Shorten confirmed that local retailers could sell goods from outside Australia without paying GST, if those goods cost less than $1,000. The retailers said this was a tax rort, but Shorten maintained that any changes to the current rules and enforcing the lower limit rule would cost far more than could ever be raised. In other words, Shorten acknowledged that the loophole existed but announced a long-term inquiry.
So the limit is going to stay for some time, and retailers should go for it. Myer and Harvey Norman both threatened to sell imported goods over the net from China to take advantage of the Shorten invitation, but they were half-hearted. Again Bill Shorten simply responded by effectively saying: “If you want to do that, go and do it. The consumers will benefit.”
Yesterday Shorten went further, saying local retailers’ claims that the low value threshold was responsible for tough Christmas trade in Australia are exaggerated. Consumers are attracted to international online stores because they are convenient, he says, and because offshore retailers have embraced the digital economy and developed sophisticated and consumer friendly business models.
Of course Myer and Harvey Norman, plus a lot of other retailers, have a huge problem. If they went out and promoted heavily the ability to buy goods under $1,000 directly from China, over time they would slash the revenue of their stores.
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Myer has long-term leases in some of the best shopping centres in Australia. If selling goods directly out of China via the net using the Myer brand skyrocketed, then it would affect turnover in these major centres and make the company less profitable. It would still have to pay its rent.
For Harvey Norman it would be even worse, because Harvey Norman actually owns its centres.
Shorten is in effect calling the retailers’ bluff. The whole issue reminds me of the arguments that took place at Fairfax as internet classifieds began to gather speed. The corporate strategy of the day was that the print product had to be protected so Fairfax did not take a blank sheet of paper and launch an internet operation against itself.
That was left to others, led by Seek, who have now made a fortune.
I think that Bill Shorten is doing the retailers a favour. They need to learn from the mistake of the newspapers and have an internet importing operation that is not shackled by the need to protect the legacy business. But I don’t think they are going to accept the challenge because it will affect short-term profits.
Meanwhile, if you want to understand just how important the internet has become in gift and similar shopping, go and talk to your local gift retailer. They will explain that time after time customers are coming in and looking at their goods and writing down the details of what they want to buy. They then go to the net and buy the item at a much lower price. The trouble is that nobody knows exactly what the customer does when they leave the shop without consummating a purchase.
Given another year or two, internet shopping will be a major blow to Australian retailers – unless they are courageous enough to tackle it head on and occupy the space thanks to Bill Shorten’s concession.
And of course, shopping centre owners are going to need to be very skilled to maintain revenues if they find that customers are coming to shopping centres and enjoying the coffee and social atmosphere, but then using the shopping centre to discover what they want to buy on the net.
In addition, many people are finding that it is too time consuming to look around stores. Often the required goods aren’t there. The internet cuts the time and cost.
If the source is in Australia you may pay the GST but the Post Office delivery system has become so efficient it takes only a couple of days for the goods to arrive if you buy online – shorter than if you have to wait for the retailer to get stock into the store.
This article first appeared on Business Spectator.