eBay A Big Problem
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CE distributors and resellers are haemorrhaging profit as overseas and domestic-based eBay sellers flog unauthorised and unwarranted goods on an auction web site that police say is attracting criminal elements from Australia and Overseas selling stolen CE merchandise.

In many cases, distributors can’t sell products to their retailers as cheaply as the Internet traders are selling via eBay. In addition some CE distributors are finding goods on eBay before they have them in stock for distribution in Australia. The problem is so bad that Sydney-based distributor, Hi Fi & Video Marketing, has asked its exclusive suppliers, Boston Acoustics and Adcom, to track serial numbers of products being sold on the online auction site in an effort to identify the source.

Also hit recently was leading hi-fi distributor and reseller, Audio Connection. It claims to have lost several sales for high-end CE and hi-fi gear in recent weeks to eBay. Len Wallis of Len Wallis Audio has also been affected, saying “We have on a number of occasions tracked down a Melbourne-based seller who was selling Krell at prices significantly cheaper than what we can.”

Hi Fi & Video Marketing’s Andrew Menzer says “Pricing on the Internet is very low and destroys most of our normal wholesale to retail mark ups. It’s a growing trend and it’s very hard to combat at this stage

He claims that a brand new 240V Adcom AV receiver that has not yet officially shipped to Australia is already on sale on eBay. “We were stunned to find an Adcom GFR 700 AV Receiver on sale on eBay in Australia. We are still waiting on shipment of our first model which we were told was held up because of certification issues for Australia”.

When SmartHouse Reseller tracked the Adcom product down we found it being sold — still in its plastic wrapping and accompanied by a manufacturer’s shipping box — with an opening bid of $2599. The recommended wholesale price is between $4000 and $5000. The sellers, who claim to be Australian, also referred interested parties to the official Adcom Website for information.

Menzer says Adcom USA confirmed it did not supply the seller. So where did the products come from? “Adcom said it had sold to certain European countries that don’t have the same certification stipulations as Australia, so that’s a possibility. The Internet traders probably have a relationship with an overseas retailer operating in volume. If that retailer wishes to move more stock, for sales targets or whatever, they might not hold back from selling to someone for immediate settlement. These relationships do exist but suppliers generally try to track down the source of the product and take action. I know suppliers have sacked distributors in other countries for transgressions such as selling to third parties for re-sale in the overseas market.

“We’re also certainly seeing a lot of our car audio products on the Internet being listed significantly cheaper than we can price them, which has resulted in quite a decline in our sales. An example is a pair of car speakers we have that retail for around $2000. The price the Internet traders are selling them for is less than the price we can sell to the retailers. We’re often under-cut by 40 and even up to 50 percent. Basically, they’re stealing sales off us.”

“That particular model won product of the year and we expected to do quite nicely from it but, unfortunately, sales have tailed off. We know from dealers that those speakers are being fitted, however, and we know they haven’t come from us.”

So how is it that Internet traders are able to offer significantly lower prices than distributors? “To begin with, the price goods are sold at in the US in some cases approach the price we can buy them at.” More significant is that “Importers, distributors and retailers have high overheads compared with e-tailers. We bring the product into the country, pay the duty, pay the GST, pay all the taxes and comply with the laws, sell it and forward the GST to the Government. We pay workers compensation, we have a building, we advertise, promote and train – we have all the normal costs.

“Internet traders don’t have these overheads. They can set up with relatively little outlay and work on much finer profit margins, all the while riding off the back of our hard work in promoting a product. In some cases I think, depending on value, there may not be any duty or GST levied as the products can be imported in what appears to be a low volume or private manner. Likewise, when they sell the products, it’s difficult for the ATO to pursue them for normal taxes and other add-ons we have to pay. They can certainly undercut us.”

One would think that an exclusive Austrailan distributor would have legal recourse to combat such competition but Menzer says taking action is complicated and time-consuming (not to mention expensive). “It’s a very grey area. The problem is of course, tracking people down and taking action against them.” He also says eBay sellers can take advantage of a simple loophole to avoid eBay moving against them after alerts from distributors. “If unauthorised sellers use registered designs, layouts and logos – things that are actually registered – without permission, eBay can pull the ads. But if a photograph is taken of a logo there is no legal contravention. It’s a loophole.”

Menzer says he can understand the attractiveness of buying cheap products on eBay, but warned of the risks involved and said he hoped consumers appreciated the wider impact their buying decisions have on the industry. “People are pretty savvy these days. They have a look at the product then hunt around for the cheapest price. There’s no question that a lot of things on eBay are very cheap, but there’s no guarantee, either. A lot of product is advertised as genuine, but whether it is actually delivered, whether it’s second hand or stolen, who knows? Certainly there will be warranty issues. There are also obvious and more intangible flow-on effects that people should be aware of, from direct employment to general economic issues”.

And what about the old saying “If you can’t beat ’em, join ’em”? Menzer says that whilst larger companies can incorporate online sales with traditional sales, as an SMB, e-tailing doesn’t suit his business model. “If we did that we’d have to price compete with the Internet traders. That would mean the margins would dissolve out and we we’d end up being the only retailer. For the moment, at least, the best we can do is educate consumers about the risks and the impacts.”

Menzer says that other car audio companies are also having problems.

Alpine sells only mobile electronic products. Alpine’s Anthony Bell says the issue is “Not really a problem for Alpine Australia as much as the consumers who buy from unauthorised sellers without understanding what they’re getting themselves into.”

He says he doesn’t see eBay and other online retailers as significant sales competitors because “It hasn’t show negatively in our market share figures. It hasn’t affected Alpine in a dramatic way. We’re not for example, losing 30 percent of our sales to online. Given that the car audio market is down a couple of percent, it may have even helped grow the overall market a little bit.

“It’s more of a concern to us because consumers are buying via unauthorised sellers, then coming back to our authorised dealers and saying the product doesn’t work. We get eBay sellers saying that their products come with factory warranties but they don’t specify that it is their factory warranty – not Alpine Australia’s factory warranty. In some cases the products have to be sent back overseas at the inconvenience and cost of the buyer.

Bell says that while he’s unsure exactly where the unauthorised product is coming from “We do have a theory that it comes from overseas dealers trying to meet their sales targets, including dealers in the USA and in Asia. There’s a lot of stock coming out of Malaysia, Indonesia and Singapore.”

Does he see the situation worsening? “It’s going to get worse because it’s the Federal Government’s official economic policy to make Australia more competitive in the world market. That’s why it encourages parallel importing and people buying stuff worth under $1000 off shore. Unfortunately, the Government isn’t considering the cost of doing business in different countries. The raw cost of the materials or product might be identical, but salaries in Australia are a lot different to that in Indonesia. The margins here have to cater for those differences.

Bill Leighton of Eastcoast Distributors (Focal car audio products) says that whilst he doesn’t have significant problems competing with unauthorised Focal products from online retailers, he did have a big problem with fake Focal products flooding the Australian market. “Chinese copies were all over eBay.” He said. “I heard a couple of knock-off sets. They sounded dreadful.”

Fortunately for Eastcost, Focal’s head office wouldn’t put up with it. “Focal sent a team from France to Asia, including Malaysia, Thailand, Vietnam and Singapore, and used the local customs to shut them down. Then they went to China and did the right deals with the right people and put an end to it. It’s all over and done with now.

“Since then, we’ve had no problems at all. I run a pretty small margin so our prices in Australia are competitive enough to keep people from bothering to go anywhere else.”

Digital cameras are a favourite product of grey importers, due to their compact size and relatively high value. Photo Imaging Council Australia’s Paul Curtis says many of the big names in photo imaging don’t appreciate unauthorised sales of digital cameras via online retailers but that their hands are tied to act against it. He says no duty is charged on imported cameras but the Government doesn’t afford the same breaks to Australian retailers. His prediction is the Government is, however, going to get a lot more active in its GST collection at customs.

Curtis warns consumers against being enticed into saving money up front because, given the nature of the product, it’s likely they’ll have to pay more when it comes time for post-sale technical support.  “Can you make a saving? Quite possibly, but it could be an expensive saving because the best price doesn’t always mean the best value,” he says. “Buying from unauthorised sellers is risky business.  Quite simply, if a retailer can’t help you, you shouldn’t buy from them because high-tech products need high-tech support. If you don’t have the support you’re never going to get the best value out of your products.”

SmartHouse Reseller noted that many eBay stores trade online under names that are unregistered with ASIC or the Office of Fair Trading. It appears this trading occurs in something of a legal fog, as neither ASIC the Office of Fair Trading or eBay could definitively comment on the legality of the practice.

An ASIC spokesperson said “We don’t have details about online sales. It comes back to public documents. I’m not too sure if the Internet is legally deemed as a public document and whether or not it requires display of an ACN or ABN, or full company name, it depends on interpretation.

“If there are any breaches of the Corporations Act, such as if an organisation is saying it’s a registered company and it is not, then you can put in a complaint. We only deal with and have jurisdiction over companies.”

A NSW Office of Fair Trading spokesperson trotted out information mainly from its Website: a business name must be registered and displayed at every place of business and said “If your business name is registered in New South Wales and you trade or open a place of business in another state or territory, you need to be registered in that state or territory.”

An eBay spokesperson advised that sellers, whether individuals or “stores” were able to trade under any name they choose and that it is incumbent on sellers to meet regulatory requirements such as ASIC company or business name registration. He was quick to emphasise that eBay worked very closely with the Office of Fair Trading and assisted it when investigating complaints.

Choice Spokeswoman, Lisa Tait, was unaware of any legal requirements for eBay sellers to legally register their selling name. And thought anyone could to it. “The important thing to recall is that it’s not the same as buying items from a real shop. You don’t have as many rights. If you buy something at auction you’re giving away your statutory warranty rights,” she said. “Basically, there are two ways of protecting yourself with eBay: looking at the seller’s feedback and using Paypal. Paypal keeps your money in touch until you receive the item.