Analysis on GST for online purchases

[Sean Lew]

Recently, Australian retailers launched an advertising campaign urging the government to impose GST on all goods bought over the internet. First of all, this has many issues from logistics to fraud detection.

Besides the obvious issues executing this proposal, I would like to specifically look at a long term solution for Australian retailers. Online sales no doubt are eating into the revenues of physical retailers and this will only continue to grow in the near future. However, physical stores and online stores are vastly different and can compete in very different ways.

Physical stores have the luxury to offer their customers to try out goods, advise on purchases, provide after sales support, allow buyers to feel the products and provide value added services to customers. However, this comes at a higher cost structure in terms of real estate, facilities and staffing costs. Online stores, on the other hand, offers lower cost structures leading to cheaper products, delivery to door step, shopping from home and time saving. Depending on the product and personal preferences, consumers will elude to the channel that suits them better.

Yes, government regulation on GST could help but the price savings online is normally more than 10%. I feel that this proposal is a short term tactical solution. I feel that Australian retailers can do a few things to improve their competitiveness in the market.

1) Increase their value added services in their physical stores. Services like pre-sales advice, shopping/customer experience and after sales support can help to increase the desire to shop in a physical store as compare to some of the online shopping nightmare.

2) Multi channel retail. With a trusted brand name, physical retailers can extend the experience to the comfort of consumer’s home. As of today, none of the major retailers in Australia have a massive online presence and ecommerce capability. They are losing the online retail battle to cheaper overseas alternatives. Such big name local physical retailers could also then reach out to consumers around the world as well.

3) Get into an arrangement with manufacturers. Manufacturers have only one aim which is to move as much of their products out to consumers as possible. Many products in the market requires some kind of touch and feel before making a purchase. Physical retailers can negotiate a lower price for products that are sold at a physical store as they provide a better service for the end consumer. They could even go into a special agreement for a specific period where heavier promotional emphasis is placed on a specific product. Therefore, it doesn’t really matter if a consumer goes into a shop for advice and buys online after that. Manufacturers have the incentive to do this if they are interested in controlling the price of their product as part of their pricing strategy.

I feel that such steps will improve the position of local retailers and they need to pull up their socks and fight this battle. Even though price is a big factor in a buying decision, there are many other very important factors as well.



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