Jul 232015
the temptation to discount for business owners and managers

Around the world threatened incumbents are turning to their political cronies to protect them from competition with businesses using technologies their cosy managers and shareholders never envisaged would exist.

In Australia, one of the laziest industries has been the retail sector. Long coddled by cosy duopolies and favourable regulatory arrangements, retailers ignored the changes to their markets since the web arrived in 1995.

Of the Australian retail industry probably the most cosseted of all was the department store duopoly. Protected by their market share and product licensing agreements, Myer and David Jones neglected investments in their internal systems and largely ignored the online world, with DJs even shutting down their website in the early 2000s.

Insular Australia

Eventually it became obvious to even the most insular Australian retailer that the internet was here to stay however in the meantime canny Australian shoppers had discovered buying overseas online was substantially cheaper, and much easier, than local stores.

Faced with offshore competitors that beat them on price, range and service, the Australian retailers started lobbying the Federal government to lower the threashold, currently $1000, that customs would take an interest in and add the ten percent Goods and Services Tax (GST) and various fees and duties. In the hope the bureaucracy would discourage local shoppers looking overseas.

Mistaken lobbying

The campaign to lower the GST threashold was a mistake says Ian Moir, the current Chairman of now South African owned David Jones. “It set Australian retailers back because they spent more time trying to persuade governments to do this than they did thinking about what the long term future for the business is.”

Moir was speaking yesterday in Sydney at an Australian Israel Chamber of Commerce lunch panel titled ‘Reframing retail for the digital age: The importance of an integrated approach’. Joining the DJs executve on the board were Craig Dower, the CEO of Salmat and David Mustow, Head of Retail & Consumer at Macquarie Bank.

The message from the lunch was clear – technology savvy customers were demanding more from retailers now smartphones are driving purchase decisions. “Everyone talks about Big Data and how you use it as an organisation,” observed Scottish born Moir. “Not enough people talk about the big data the customer has on their mobile phones.”

Mobile first

Moir’s view on mobile was endorsed by Macquarie’s Mustow who stated “if you’re investing in this space it’s mobile first.” Salmat’s Downer added to this with Salmat’s research that found 55% of online retail sales are coming through mobile devices.

That Australian consumers have one the world’s highest smartphone penetration rates and are also among the planet’s most avid web user only shows how poorly local retailers have responded to the web and mobile devices over the past two decades.

When Moir took the reigns at David Jones last August after Woolworths South Africa – unrelated to the local supermarket giant – the company was making a piddling one percent of its sales online. The new management has grown this three fold but it’s still trivial compared to Australians’ appetite for online shopping.

Dampening overseas demand

The appetite of overseas online sales will dampened should the proposed GST changes reducing the taxable threshold on imports to $20 be introduced as consumers deal with the bureaucracy, delays and costs of Australia’s dysfunctional customs system however Moir warns this will only be a temporary respite, “these changes only affect you in the short term, it tends to sort itself out over time.”

Indeed for retailers, the GST changes will probably only benefit customs agents and bloated ticket clippers like Australia Post along with introducing a whole range of unexpected consequences as foreign retailers and local entrepreneurs find opportunities in the new tax regime.

While the champagne may taste sweet for Australia’s retail lobbyists as they celebrate their likely win over brunch at Sydney’s exclusive Balmoral Beach Club this Sunday, their employers are going to find that swaying the politicians is the easy part – it’s ultimately the market that guarantees your success.

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