Consumer Electronics distributors who face a grim future if big retail chains like Harvey Norman and Myer start selling into Australia from web sites operated from Southern China, claim that both Companies are “bluffing” however some believe they are “deadly serious” and if so the retail distribution scene in Australia could change forever.
On Friday Myer set the ball rolling when they declared that they were close to rolling out a major web operation that will sell goods to Australian’s GST free up to $1,000.
This was quickly followed by our exclusive revelation that Harvey Norman was set to do the same in an attempt to take on US retail giants like Staples, Amazon and Best Buy who are opening their US web sites up to Australians in a move that will products offered to online consumers at up to 50% less than what Australian retailers are currently selling the same goods for in Australia,
Len Wallis, of Len Wallis Audio, who is also a director of distributor Advance Audio Australia, said the move by Harvey Norman to sell online via China, could have a “profound” impact on Australian distributors. In fact it could send some of them broke, he said.
Wallis, said distributors are going to have to learn how to operate on smaller margins. There is no way that they will survive on the margins they are currently getting, especially as online operators will have access to products at considerably lower costs.
He believes that the maximum margin or the “comfort zone” for an Australian consumer is a 20 percent margin. Above this, retailers will start losing customers to online.
Late yesterday Harvey Norman Chairman Gerry Harvey confirmed our original story when he told Fairfax Media that he was serious about setting up the website, following frustration with the tax-free and duty-free prices offered by overseas competitors and inaction by the federal government.
“I spoke to our online man this morning, and I said why can’t we do that? And he said there is no reason we can’t do that at all.”
Mr Harvey said his offshore website would most likely not sell large whitegoods, such as washing machines or televisions, as they typically sell for above $1000 and attract the GST.
He did admit that consumer electronics goods would be a key part of the product portfolio offered by Harvey Norman from their China based web site.
He said he would not sell clothing or clothing accessories similar to Myer.
”We would look at doing some other types of products that are good sellers online, set that up, if we set it up and do it the same way as others, we won’t have to pay any duty or GST either.”
Ken Dwyer the CEO of Audio Products Australia a supplier to Harvey Norman and the distributor of Denon, and NAD sound system s and Loewe TV’s believe that conditions are changing for distributors.
He said “I think it is ridiculous that GST doesn’t apply to all products across the board with both online and in retail. I think retailers give fantastic support to consumers – a bargain is not always necessarily a bargain if something goes wrong and a consumer needs the support of a retailer”.
“In relation to (Myer and Gerry Harvey’s announcements), the actions are very recent, so I’m not certain what way it will go.”
“However, there needs to be a level playing field and we have got to support the retailers, but, if consumers decide they want a no value added model, then we’re out of business!”
When asked whether distributors would have to rethink their business model going forward he said “It all depends if the end consumer wants a no value added business model or not. “
“Distributors provide an important function, they carry millions of parts, have technical staff and train dealers, all of which adds value to the supply chain.”
On the question of whether we are now facing a new retail era Dwyer said “We’re definitely moving into a new era and it’s an interesting time, but the battle front doesn’t always move forward uniformly.”
“This probably is the future but it will be a while before budget products are able to move to this level.”
“Dealers don’t charge a lot currently for after care service, but this could all change. Third party service and support could become the norm, with retailers becoming more like ‘fulfilment centres.'”
Josef Riediger the CEO of Audio Connection, a custom installer and distributor of audio gear said the Internet issue has been coming for more than three years. Recently he shut down his retail store in Sydney due in part to pressure from online to concentrate on his distribution and custom install business.
He said “People have been coming into my store spending time with my sales staff who have spent a lot of time given them valuable information only to find they have been milking us of information so that they could buy cheap gear online”.
“The issue for Harvey Norman and Myer and anyone who wants to follow them online from China is that they are not going to have to compete with each other but big global brands like Best Buy, Amazon an E Bay who can not only buy cheaper than what Harvey Norman and Myer can but can sell into Australia cheaper than they can”.
“I believe that at this stage they are bluffing. All they want is the Federal Government to introduce a 10% GST. The miners called the Federal Governments bluff and so will the retailers”.