With apologies to Robert Browning:
And out of the houses the retailers came tumbling.
Great retailers, small retailers, lean retailers, brawny retailers,
Brown retailers, black retailers, grey retailers, tawny retailers,
Grave old plodders, gay young friskers,
Fathers, mothers, uncles, cousins,
Cocking tails and pricking whiskers,
Families by tens and dozens,
Brothers, sisters, husbands, wives —
Followed the statistician for their lives.
Out they tumbled yesterday, after the Australian Bureau of Statistics revealed online purchases below the $1000 GST limit topped the $7 billion mark in 2012-13, and are a bit higher than the Bureau’s previous estimates of around $6.2 billion. It was a reaction so predictable that Fairfax’s Peter Martin forecast it, saying “retailers are certain to jump on the figure and say it shows how much they are being undermined by untaxed and unchecked parcels from overseas”.
Cue grave old plodder Gerry Harvey: “[i]t’s huge and it doesn’t surprise you because every second Australian buys something online overseas. Retailers have been going on about this for some years now, telling government what’s going to happen, but the government has just ignored it totally and it was always going to come back and bite.”
Cue young — OK, not so young — frisker Russell Zimmerman, executive director of the Australian Retailers Association: “The concern isn’t that people are spending money online — either locally or overseas. The concern is that it’s not a level-playing field. We believe that the firm of online [shopping] generally will grow, and as that figure grows, there will be a bigger loss of income to the states and territories if they don’t do something about the low-value threshold.”
As Barclay’s chief economist, Kieran Davies, noted, while offshore online transactions have been growing rapidly, they only form a tiny part of retail sales. That’s the way it’s been for the last couple of years.
The ABS has promised more detail on local online purchases by consumers in the November retail sales report (to be issued next January). But the statisticians at Belconnen in Canberra have already published a small amount of detail which hints at the way traditional retailers are being left behind in Australia and it’s not that they are being swamped by the pure online operations such as Gray’s or The Iconic, but the likes of fast food floggers, such as Pizza Hut and Domino’s, are doing it better as well
“The ‘pure-play online retailer’ accounted for around $160 million a month of retail sales, or close to $2 billion a year.”
The ABS said in its July retail sales report that around $4.6 billion a year was being spent on online purchases by consumers in Australia. Total domestic online sales were put at 1.8% of May’s $21.87 billion in sales, seasonally adjusted. That’s around $400 million. According to the ABS “[p]ure-play online retailers contributed approximately 40% of this estimate. Multi-channel retailers contributed the remaining 60%, of which half was food-related (i.e. derived from the food retailing and food services industries).”
So take away/home delivered food derived from online ordering, plus the home delivery of groceries and other items accounted for an estimated $120 million in May, or more than $1.2 billion a year. That will be an eye opener for a lot of online retailing enthusiasts and technology advocates. Domino’s and Pizza Hut are as much “bricks and clicks” retailers as Myer, Harvey Norman are — in fact their clicks are far stronger than the bricks, which are just storefronts in many cases. They have adapted far more quickly.
Multi-channel retailers refer to the likes of Myer, David Jones, Noni B, Specialty Fashion Group, Kathmandu and similar bricks and mortar operators who are slowly expanding their online offers. They account for another $120 million a month. or more than $1.2 billion a year. Speciality Fashion said its online sales jumped 50% in 2012-13 to $22 million and Noni B said its online sales reached $1 million in the year to June. Kathmandu has reported that its sales are growing quickly and were around $18 million in the year to July.
The “pure-play online retailer” accounted for around $160 million a month of retail sales, or close to $2 billion a year.
So if Harvey and his mates want to be really honest with themselves, they’d take a look at the success of Pizza Hut or Domino’s. These groups are competing for the consumer dollar online and winning because they understand about pricing low and order fulfillment (you have to aim high and stay there).
And this of course doesn’t include the growing pure online downloads, such as ebooks from Amazon, gambling, video games, software, and playing games online. Buying games online, registering on the New York Times, or the Financial Times, and a host of other goods and services are all part of the online world where Australian retailers can’t or won’t compete. And how do you find out? And how do you levy GST?
But don’t expect any of that to sink in to traditional retailers. Instead, expect them to come tumbling out again in January when the Pied Piper of Belconnen produces some more online retail data.
The cost of collecting GST from offshore purchases under $1000 and shipped via Fedex etc to an Australian mailing address is pennies in the dollar. Modern IT systems makes it a totally automated process with way bill barcodes easy to scan at the customs clearing agent, and a GST invoice then generated and mailed separately to the customer. The cost of the postage stamp could also be included.
There is no need for any delays in delivering the product, as the GST bill can be sent like any post pay account (ie phones, utilities etc) and the purchaser simply pays the GST bill online – which should be no problem given they purchased the product online in the first place.
The reluctance of the previous government and one assumes the current government to do this is that the offshore GST-free purchase scam is a nice little bone to throw the taxpayers of Australia who in the main don’t like paying GST taxes and now collectively assume it’s their right to buy billions of dollars of products from offshore tax free.
The productivity commission report that found it would not be profitable to collect GST for purchases under $1000 was a typical government commissioned report where the terms of reference were constructed to get the answer the government at the time wanted.
Over the next 10 years the current 700 million a year in lost GST will easily exceed over 1 billion a year leading to a GST leakage of over some $10 billion in the next decade. Obviously that would pay for a lot of essential government services using taxes rather than deficit financing.
The real issue with Australian retailers is ending the so called “Australia tax” distributors apply to goods sold in Australia making it very difficult for local retailers to compete on anything approaching an even playing field. There’s also the issues pertaining to the local costs of renting retail space – with all manner of private companies and their mates in local and state govts restricting new retail space development to favour two very large retail space developers.
To Simon and B&M retailers, bit of a history lesson. Customs built a fancy new system, cost them $200m. It didn’t work and is still way too cumbersome.
Ask a customs broker how much they need to charge to lodge a full import declaration for your parcel. That is a result of what customs built. Be careful what you wish for!
It is futile to expect Australian Customs Service to spend more money (which they won’t be given) building an efficient, user friendly, cheap system to do this job. They’re a little busy fighting the illegal assylum seeker transport providers association.
If you could get stats for the highest volume individual users of the sub $1k import scheme, guess who would be right up there? Gerry, maybe you don’t want that question answered?
Also let’s a little closer to home, Aussie Post loses money on every parcel that comes from overseas, how do they make up the loss? B&M retailers have a host of disadvantages and are being done over. Don’t limit it to GST.
GST is 10%, the difference is more than that, and it’s not just price!
Alex – that is such a strange set of reasons to do nothing.
Over 10 years we are looking at 10 billion in lost GST revenues – If the govt spent 1 billion building a system that delivered cheap goods processing – then that would be a very good investment with a ROI of 10:1. Especially if also facilitated an economy wide improvement in importing processes.
I don’t care about B&M – I just want the tax paid and the government funded to spend money on essential services.
The idea that we should charge GST on imports to protect local retailers is a red herring. We should simply tax imports equally like everything else within the economy.
That the current customs system does not work very well is no argument to improve the system. For all sorts of reasons we need a quick and easy customs clearing system that enables discrete purchasing from an efficient global marketplace.
I don’t care if Harvey Norman stays in business in not. But I do care that our schools, hospitals and disabled are funded properly. Our taxation system is nowadays partly based on a GST system – that needs to be strengthened and protected from leakage due to changes in purchasing processes.
All in all a simple policy objective that the government will eventually do something about.
So we’re asking bricks and mortar retailers to shape up their online offer and be more competitive like Domino’s and Pizza Hut… Who have no external competitors because you can’t order a cheaper version of pizza from overseas. So in reality what they really did was make a more convenient offer for the guaranteed customers they already had. Undoubtley gaining a small increase in sales, increasing average dollar per sale and reducing the cost of running bricks and mortar shop fronts, therefore becoming more profitable and allowing themselves to provide lower prices etc etc…
There is no doubt small and large goods retailers can take some notes, but to make comparisons and suggest they don’t have an excuse for not being competitive is unrealistic. Yes – que all the head retailers still whinging about the unfair GST break overseas/retailers are getting. They are probably crying so loud because its costing them and Australia more and more money each day we allow it to continue. Their would probably be more retailers verbalising their issues but they are busy trying to figure what to do as they write the lay-off letters.
I just love the simplicity of the scan a barcode send send an invoice in the first response. And of course the punter Will dutifully pay it without follow up? I wonder if they will, or Will we need another system to send a series of reminders, threatening letters and eventually handover the debt to merchantile agency for collection. I suspect the productivity commission got it right.