A regular review of interesting cultural shifts & marketing developments as viewed through the collective lens of the Stancombe Research + Planning Team

Thursday, August 4, 2011

Retailers to blame for own woes: Productivity Commission

Chris Zappone
Sydney Morning Herald
August 4, 2011 - 1:47PM

Retailers get little satisfaction from a Productivity Commission report into their industry. 

A productivity commission report dismissed claims that GST-free online shopping is harming the local retail sector and instead blamed the sector's woes on high labour and real estate costs, and low productivity.

“Government's role is not to shield the industry from competition but to remove constraints which restrict the industry in responding to this heightened level of competition,” said Philip Weickhardt, presiding commissioner in a statement.

“The current exemption from GST and duty for imports valued below $1000 is judged by the Commission to be only a minor contributing factor to online offshore purchases by consumers,” the report said.

The draft report into the state of Australian retailing suggests that states and local governments reform planning and zoning regulation and retail trading hours restrictions as a way to foster growth.
“The Australian Government also needs to review any constraints imposed by workplace relations regulations which may impede retailers in improving their productivity and lifting customer service levels,” the report said.

Mr Weickhardt said that “intensified retail competition is a boon for consumers, but it is challenging for a retail industry which, overall, has lower levels of productivity when compared internationally and, in many cases, faces higher costs.”

The inquiry into the retail sector, announced at the end of last year, came after major retailers such as Harvey Norman and Myer lambasted the government for allowing consumers to purchase goods online from overseas for up to $1000 without incurring the 10 per cent GST fee.

Their complaints provoked a backlash by consumers who criticised local retailers for their own troubles, arguing that poor service, high prices relative to those overseas, and the lack of choice in many categories of goods were to blame.

The traditional "bricks and mortar" retail sector has slumped in recent months, as consumers, armed with a strong dollar, diverted their spending to internet purchases, many from businesses overseas.
Official retail sales – the Australian Bureau of Statistics does not count sales by online only business - posted a surprise 0.1 per cent fall in June, taking the annual increase to the lowest in half a century at a reported 2.6 per cent pace.

The higher cost of living and falling home prices have also hastened the change in consumer behaviour, analysts say.

The sector collectively employees about 1.2 million people in businesses that generate revenues of about $240 billion a year, according to the Australian Retailers Association. 

Exemption cut option
The Productivity Commission’s draft report did not rule out a reduction in the $1000 tax-free threshold for import exemptions if the process became more efficient.

“For reasons of tax neutrality, the level of the low-value threshold should be reduced, but only once this can be done cost-effectively,” said Mr Weickhardt.

The report also announced plans to form the taskforce to “investigate lower cost approaches to processing in both the mail and courier systems, with a reporting deadline in 2012.”  Local retailers face higher shipping costs compared with international competitors, particularly from the UK, where many shops offer free shipping to Australia.

The current tax and duties collection process are “not efficient” the commission said, with a very low threshold of $20 pushing the cost of collection above the tax revenue by more than a ratio of three to one.

“Such a cost impost on both importing businesses and consumers is unacceptable even without considering additional costs such as delays,” the report said 

The report recommended the ABS should track both domestic and overseas online spending by Australians with surveys that distinguish between types of businesses doing the selling.

Retailers respond
The Australian National Retailers Association, welcomed the in-principle support for lowering the GST threshold and the reform on trading hours.

“ANRA is disappointed there are no specific recommendations on customs duties and removing parallel importing restrictions, which would be straight forward changes that would have an immediate impact on the retail sector – particularly for book and entertainment retailers,’’ said chief executive Margy Osmond.
Russell Zimmerman, Executive Director of the Australian Retailers Association said: “There is no doubt retailers need to respond to current consumer demand by including online eCommerce offerings in their business mix.’’

eBay Australia vice president Deborah Sharkey said, "Today’s guidance from the Productivity Commission outlines a clear message for Australian retailers; they must embrace online in order to remain competitive and relevant to consumers."

Since first lamenting the GST disadvantage, both Harvey Norman and Myer have launched low-cost online shopping sites since their initial complaints. However, their offerings lag so-called pureplay outfits such as DealsDirect.com.au and CatchofTheDay.com.au.

James Packer’s Ellerston Capital took a share of Deals Direct, while Catch of the Day landed private equity backing in June.

Public hearings are scheduled for next month with a final report to government due in November.

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