opinion If there is one thing which maverick Australian entrepreneur Dick Smith is good at, it is causing controversy.
From Australian manufacturing to population control, from environmentalism to freedom of speech, from terrorism to civil aviation, if Australia is debating an issue, then Dick Smith is likely to have an opinion on it, and all it will take for that opinion to spill forth is a quick call from a journalist. Ten minutes later, Bob — or maybe Dick — is your uncle and the media has a new, sensationalist and usually apocalyptic quote from an Aussie icon to slather all over itself, in big gooey, slightly radioactive globs.
Last night proved no exception.
For reasons which I have been unable to ascertain, given that he sold his flagship electronics chain to Woolworths 30 years ago (almost before the Internet was even invented, and at a time when it predominantly sold black and white TVs and bits of wire), the ABC’s normally excellent discussion show The Drum called on Smith to proffer his expertise on the issue of online retailing. How might Australia’s supposedly ailing retail industry take itself forward with vim and vigour, The Drum’s host Tim Palmer wondered out loud, with the ominous threat of the Internet hanging over every cash register, siphoning transactions daily from the great wheel of commerce?
And of course Dick had the answer.
As I — and no doubt, countless others — watched, aghast, the 67-year-old Smith sequentially shut down every other member of the panel discussion of which he was just one part, and proceeded into an epic nationally broadcasted rant about economic protectionism, Gough Whitlam, the cost of Australian wages, the ongoing complaints by retailers like Gerry Harvey about online GST collection and why politicians should “tell the truth” about jobs going offshore.
In one memorable moment, Smith claimed that if international online retailers weren’t charged the “$600 million” worth of GST he claimed they should be paying, Australia wouldn’t be able to pay decent wages for our police forces or even fund the ABC, and that the retail industry for items with a value less than $1,000 would eventually cease to exist as Australians bought everything online.
As rants go, it was fantastic. My blood pressure rose several points as I fought an overwhelming urge to throw my dinner at the television screen, and Dick was successful in drawing the entire focus of The Drum’s panel discussion into a shouting match between him and normally impeccably behaved commentators like the ABC’s Annabelle Crabb and the Institute of Public Affairs’ Tim Wilson. To put it nicely: Our Dick was on fire.
I recommend you watch the entire segment to catch the Aussie icon at his finest; the debate starts here at the 29 minute mark.
Now, I wouldn’t describe Smith’s rant as entirely coherent; it was less in the line of reasoned argument and more in the line of an angsty rambling monologue which sought to sledgehammer the Government on a whole range of issues while avoiding any modicum of responsibility on the part of bricks and mortar retailers for the less than perfect “trading conditions” which they currently find themselves in. But that didn’t matter really. It wasn’t as if anybody else on the panel was qualified to speak on the issue anyway … Dick’s only real control factor was the host, Palmer, whose feeble protests about the strengths of Apple’s retail stores was brushed off by the entrepreneur within the space of about three seconds.
However, after I calmed down, finished my dinner and started thinking about Dick Smith’s history and the issue of retailing in the electronics industry in general, a wider point begun to surface in my mind. For that, Dick, and for almost making me choke on my brussel sprouts, I thank you.
As Australia’s technology sector has begun its annual two-week saturation experience with news emanating from the Consumer Electronics Show in Las Vegas, it is increasingly clear that globally, many technology manufacturers and retailers still largely see themselves as being caught in what I would describe as the paradigm of ‘marketplaces’ for their goods and services being sold.
Companies like Sony, LG, Samsung, Canon, Microsoft, Nokia, HTC and others are currently launching thousands of products at CES, and will launch hundreds more at the upcoming Mobile World Congress confab in Barcelona, with the view of attracting broad interest. The idea is that they will then work with retailers like Harvey Norman and distributors like Telstra, Optus and Vodafone to offer these products to customers.
The concept — call it historical — is that customers wanting a new gadget will walk into stores or browse their options online and make a choice between the various products. They will then buy the one which they want. It’s this sort of buying pattern which retailers like Dick Smith and Gerry Harvey have grown up with. It’s all they know. And it dates back millennia, to the days when community markets were the only place where regional goods were sold. From Rome, to Egypt, to China, every city, every civilisation has had its markets, and Dick Smith and Gerry Harvey are but the latest scions which this epic economic cycle has created.
The only problem is, in many cases, consumers are no longer making the traditional types of choices about what products they buy, because something like 95 percent of new products don’t matter.
Take the mobile phone market. Right now, if you talk to industry insiders, it is becoming appallingly clear that despite the fact that new phones are being launched all the time, in reality consumers are predominantly buying just a handful of devices. The huge number of Australians who bought a new smartphone in 2011 were far more likely to have bought an iPhone, a HTC Desire or Sensation, or a Samsung Galaxy S II, than any other handset.
They didn’t go to a “marketplace” and make a choice. They bought one of the top three or four options directly from a telco and ignored the bottom 50. And when the Samsung Galaxy S II, likely 2011’s best smartphone is available for peanuts — $39 per month (including plan) over two years on Vodafone — can you blame them?
It’s a similar situation in tablets, where something like 90 percent of Australians are buying iPads, which is virtually the only tablet brand with any market penetration right now. The only other tablet device Australians are really interested in is the Amazon Kindle. And often people will own both, because the Kindle is the best eReader. In laptops it’s a little more diverse, but again there are only a handful of models, led by Apple’s MacBooks and with the most popular models from HP, Dell and Acer hovering around as well. Lenovo in the business world. In television sets right now, according to my peer group, it’s Samsung. In furniture, Ikea.
The rapid integration of technology platforms with each other is only increasing this trend. Many people no longer use separate MP3 players, GPS navigation units, fixed or video cameras, audio recording devices, portable gaming consoles and so on. They just use their smartphone for all of these purposes. And I’m sure in a year or two laptops will start dying as keyboards are better integrated into tablets. TV brands will start dying when Apple eventually launches the iTV or whatever. We all know it’s coming.
Other areas are being touched by this trend as well. ISPs like iiNet do not want consumers to make choices about their ADSL routers. They want them to buy their standardised BoB device. Telstra does not want consumers to use their own digital video recorder. Telstra wants customers to use its T-Box. Video gaming options have increasingly become condensed to Microsoft’s Xbox and Sony’s PlayStation 3 consoles, and we’re not too far away from a future where all content to those platforms will be delivered digitally, doing away with yet another “marketplace” — the physical video game retailer.
Even within these digital marketplaces, choices are becoming less important. If you’re into role playing games, in late 2011 you were probably playing just the best one — the Elder Scrolls V: Skyrim. If you were into action adventures, there is no doubt you would have been playing Batman: Arkham City. For many people, there has been no need to make choices about which game to play, when it has become incredibly obvious which one is the best one to suit your needs. When you can get the best experience in a convenient format at a decent price, there is no need to settle for second-best.
The reason why this is occurring should be obvious by now: Globalisation.
When most of the top products are available globally (at least in first-world countries), there is no need any more for consumers to make choices — and hence, compromises — about the products they buy. They can simply read an authoritative review on the whole category of products on a global site like Engadget, and then follow that site’s recommendation for the best global product at any time. Then, you can often buy that product directly from the manufacturer — for example, Apple or Amazon — rather than dealing with a local distributor.
This process is inherently better than dealing with third-party distributors. You get the best stuff from the people with the best expertise about that stuff. You might pay more for it than those living in the manufacturer’s home country, but then you’d pay more at retail anyway, and this way you avoid the uncomfortable experience of dealing with retail staff who usually know less about the products you sell than you — or your cluster of Internet review sites — do. It’s this concept which is behind the success of Apple’s retail stores. If you buy stuff from Apple directly, you know they have the model in stock, you know precisely what the price is going to be, you get great service (albeit with a free dose of reality adjustment thrown in) and you’re getting one of the top products in whatever category you’re shopping in.
This concept — of the demolition of the idea of ‘choice’ and ‘marketplaces’ — is also evident in other areas of consumer electronics.
One of the central issues with Google’s Android platform is the difficulty consumers have with upgrading their handsets to the latest version. Honeycomb? Ice Cream Sandwich? Gingerbread? Froyo? We don’t care. We just want the latest version, whatever it is, and we don’t want that download to be controlled by our carriers, because they’re not the people who make our smartphones. Just get out of the way, the mantra goes, and provide one central, standard way through which Android can be updated, directly from the source to you.
A lot of what Dick Smith talked about last night, and what manufacturers will be talking about post-CES, is distribution. Jobs for people in stores. Deals being signed with carriers. Country-specific marketing campaigns. Economic protectionism for local manufacturing. But the reality is that increasingly, consumers don’t care about any of that. Many people would prefer the third-party retail ‘marketplaces’ which have existed for millennia to simply disappear as the ability to build relationships directly with the people who actually make the stuff we buy becomes possible, and in fact, completely normal. That middle men have a vastly reduced future in the global economy should, by now, be obvious to everyone. And this capitalist class — which has long made its margins on the top of the real innovators — deserves to die an ignominious death.
Dick Smith and Harvey Norman are fabulous examples of retail marketplaces where you can buy anything. But increasingly, people don’t want to buy anything. More often than not, they only want to buy the best thing. And that’s the one thing which mass market retailers never quite seem to want to sell you.
Image credit: Dick Smith on The Drum last night, believed to be covered under fair use
Nice summary of what I thought Dick Smith was trying to get across Renai.
I think that he was also trying to get the point across that Governments and Businesses in general are poorly prepared for the dynamic shift in a number of areas that are occurring because of the internet age.
IMHO the issues that were implied such as where do Governments get their required income from in a global economy where there are no middle men is something that we should be considering.
Isn’t it exciting…… the times they are a changing.
That debate was absolute gold!
Nice piece as well Renai :)
You forgot (or deliberately left out) PC gaming. The digital distribution of Steam makes your point even more clearly than the PS3 or XBox examples.
I think you are right on with this one Renai … as an IT professional who has been purchasing online for years now, I get continually frustrated by product providers who simply don’t seem to want my money.
My best shopping experiences have generally been when I purchase directly from the people who make the product. Apple is a great example (as much as I hate Apple products, we do own 3 iPods in our house, all bought directly from Apple), and as a Christmas present for my son and myself, I recently bought several GoPro HD Hero2 video cameras direct from GoPro in the US (at about a 25% discount to local retail prices!).
When purchasing some specialist travel clothing for a backpacking trip several years ago, I fell in love with ExOfficio clothing. I still wear their tshirts and boxers daily – I simply haven’t found anything as comfortable and as well fitting (especially given my “large” stature!). Unfortunately, the only local retailer of their products (Paddy Pallin) are so incredibly expensive, and have stopped stocking most of the products I prefer anyway. I’m pestering ExOfficio to offer international shipping directly (to save me bothering with a 3rd party forwarding service) … at which point I’ll never need to bother with local retailers and their price-gouging markups. They’ve been telling me it’s “coming soon” for quite a while now, as soon as they get on board, they’ll get my money directly – no distribution hassles!
Either way – it is frustrating when I can’t buy a product that I know works well … simply because nobody wants to sell it to me!
And don’t get me started about books, movies and music. Aggregation services (ie bookstores/itunes/etc) are useful – to a point … but I’m wondering why a book publisher wants me to pay for Angus & Robertson to get a ebook when they should just be selling their books (including full back-catalog!!) to me directly. There are so many examples of books I want to buy, but nobody wants to sell me – either because I live in Australia, or because it simply isn’t available in ebook format yet. Why not? Why don’t they want my money?
The world is broken – and established industries are busy trying to “fix” it (protectionism, subsidies, content protection, limited distribution, etc) and wondering why they are struggling … all while the smart players are out there simply creating a new world.
It’s simple really – I have money. If you want it, make it easy for me to buy your products.
The place your argument falls down is government regulation. That’s the only reason to pay for distribution now, is because you don’t want to bother paying local lawyers to sort out the regulatory junk.
There’s an easy (partial) answer to that … less regulation!
Of course, I am realistic enough to know that there does need to be some regulation – but in general, 99% (I guess) of consumer products require no regulation, so there shouldn’t be much of a problem.
The biggest issue the manufactures and suppliers want less regulation and open access to markets but still want to restrict consumer access to markets to maintain regional restrictions and pricing.
What an amazingly epicly good article Renai. I don’t know how you have the brain space to churn these out. The consumer view of several generations very well encapsulated.
You hit the nail on the head with “integration of technology platforms” As the move from Analogue to Digital products sweeps across the entire consumer electronics market and more products become just features on another product, bricks and mortar retailers like Dick Smith and Harvey Norman simply offer nothing that anyone wants to buy.
Virtually the entire time Gerry Harvey has been running his ‘category killer’ franchised business model he has simply refused to sell on-line. It is only very recently that Harvey Norman has actually had a web-site that offered the opportunity to buy on-line, yet on-line retail has been around for well over a decade!
There are several reason for this reluctance 1) Selling on-line has been actively discouraged by all old-line wholesale/retailers as they see it as direct price competition. 2) Each department in a HN store is a separate franchise so any HN on-line store would’ve been seen as the franchisor stealing sales from franchisees 3) HN entire business model is built on selling HN’s own financial services… not an easy thing to do on-line when you can’t get a customer to sign on the dotted line.
They left on-line sales wide open for competitors to move in… and to no-ones (under the age of 67) surprise, they have!
There’s nothing so constant as change. Consumers are deleveraging, everyone has the Internet and already owns several PCs and a Flat Screen TV, digital products have merged wiping out demand for entire categories of products and Telcos now sell most phones.
What ‘value-added’ did Dick Smith or Harvey Norman ever bring to the market anyways other than physical distribution? They’re just dumb shop keepers who’ve been slow to adapt and are being put out of business by eBay, the iPhone and Courier companies.
Have you actually seen how Harvey’s have “solved” their franchise problem? The online store is just another franchise! Bottom of the website says: “Harvey Norman Online is operated by The eCommerce Agency Pty Ltd, an independent franchisee.”
— the demolition of the idea of ‘choice’ and ‘marketplaces’ —
the real story of the Internet over the past decade is the rapid flourish and growth of new online marketplaces. consumers are attracted to online shopping precisely because of the increased variety of goods and services available.
i have bought so many rare, out-of-print academic publications from Amazon that would otherwise not be easy to source even if i was living in the United States. also, the huge variety of goods one can purchase on Ebay (everything from cheap plastic objects to rare Egyptian antiques) represents a massive expansion of choice over what would normally be available from mail-order catalogues or the local Trading Post. and all those people ordering expensive, high-end branded fashion goods online from overseas fashion retailers are not doing it to save money, but to access products that are otherwise not available in the local markets.
“markets” are all about “choice”, and the internet revolution has all but strengthened the primacy and importance of “markets” transacting in the online sphere in our real lives.
— That middle men have a vastly reduced future in the global economy should, by now, be obvious to everyone. And this capitalist class — which has long made its margins on the top of the real innovators — deserves to die an ignominious death. —
Amazon, Ebay, Groupon, Paypal, Google, eHarmony, etc are all “middlemen”. in fact, the most successful internet companies over the past decade all perform some kind of middlemen function.
sorry to pop your bubble, but capitalism is not dying any time soon.
> Amazon, Ebay, Groupon, Paypal, Google, eHarmony, etc are all “middlemen”. in fact, the most successful internet companies over the past decade all perform some kind of middlemen function.
Yes, there but think about what these middlemen are offering – invariably it is some form of “value add” which you can’t get from a traditional retailer … whether it be scale aggregation, sell-anything marketplace, bulk-discounting, payment processing, etc – these are mostly things that a retailer generally can’t do on their own (except perhaps the biggest of them).
I think that middlemen who add little or nothing to the sales process are (and should be) a dying breed.
+1
— Yes, there but think about what these middlemen are offering – invariably it is some form of “value add” which you can’t get from a traditional retailer —
the reverse is true. online retailers are stealing market share away from bricks & mortar retailers because they are compressing the value chain and offering less “value-added”.
the reason why online retailers are able to undercut traditional retailers is because they are offering a lower level of service. the ability to walk into a shop and consult a salesperson for product advice is a form of value-added. (the fact that some sales personnel are rude and incompetent at their jobs does not invalidate that fact. otherwise, these retailers can boost their profits by sacking their floor staff and merely hire people to man the cash register.)
the higher level of service provided by traditional retailers include the convenience of having multiple, physical points of presence at prime locations that allow the impatient customer to pick-up the desired product easily and immediately during trading hours. not everybody wants to wait an entire week to get their hands on something they need “urgently”. “instant gratification” is an important key to consumer satisfaction.
and then you have the issue of after-sales service. personally, i love shopping at Officeworks and DSE because you can return a purchased good within 7 days for a full cash refund with no questions asked. even $3,000 laptops. even for retailers without this generous “change of mind policy”, there is also the convenience and piece of mind of knowing that you can easily return a monitor or LCD TV to the same shop you bought it from if you discover dead pixels or other faulty components.
in general, (complaints about service quality aside) when you are buying from a bricks & mortar retailer, you have a more substantive “relationship” with the seller than when you are clicking through a website because you are dealing with a human face. “peace of mind” is another important key to customer satisfaction, especially for high-value, expensive items.
— whether it be scale aggregation, sell-anything marketplace, bulk-discounting, payment processing, etc these are mostly things that a retailer generally can’t do on their own (except perhaps the biggest of them) —-
with the advent of Harvey Norman, Dick Smith Powerhouse, Bunnings Warehouse, Officeworks, Big W, etc, most of the small retailers have long since departed from the retailing scene. and all these big players offer some form of “scale aggregation”, “bulk discounting”, “payment processing” and plenty of product variety.
in terms of product variety, the key advantage of online shopping is not that the average internet retailer has a greater selection of products than the average bricks & mortar retailer. rather when you are shopping in cyberspace, you can “visit” more stores than you can physically visit in the real physical world. put simply, by shopping online, you have access to a greater number of stores.
it is one thing to suggest that “warehouse concept” retailers will continue to erode the market share of smaller bricks & mortar retailers. it is a completely different kettle of fish to assert that ALL bricks & mortar retailers will completely disappear from the face of the earth. if you really believe that, you should borrow as many shares of Westfield and other local and foreign retail property trusts, short them and become a rich man!
however, i do not believe that is the case at all. not all products are the same. in general, internet retailers will develop a competitive advantage in selling certain types of products: usually small, relatively low-value, technologically-mature and commoditised goods. traditional bricks & mortar retailers will retain a competitive advantage in selling the remaining categories. there will be a shift in product and margin mix, but the physical stores will not disappear altogether.
if you consider how premium manufacturers such as Apple and Sony are prepared to invest capital to maintain dedicated physical stores or display centres in prime locations, you will realise that, in this world of infinite product and brand variety, there is substantial marketing value in maintaining physical points of presence and human sales contact with your customer base.
i wish people would stop extrapolating to extremes.
I see the problem as the inability to innovate from the ‘big’ giants, and they just want the government to legislate protection for them.
GST is 10% – and Australian wages should not make much difference when you have as much scale as Harvey Norman, a extra $20 per hour per person should be insignificant when most of your shops sell thousands of items every day.
If the difference was, say, 15% or even 20% I might be inclined to shop at bricks and mortar shops more often – but it’s not, the last expensive item I bought was $649 and that was a few months back, Harvey Norman wanted $1100 and Dick Smith wanted $1400.
Today, the place I bought this item from want $539 – Harvey Norman still wants $898 and Dick Smith $1,146
That is a insane difference in price… I think the main reason that stuff at Harvey Norman is expensive is because they offer a ‘extravagant’ shopping experiance, that not everyone wants.
When some, maybe even most people go shopping they want to hear music, walk on marble floors, have the ability to try everything on, have everything on display, have sales people ready to help at a moments notice, and isles so big you can drive a SUV down them.
Some don’t.
Alot of the people that end up shopping online are those that don’t care about a extravagant shopping experiance, like myself.
When I buy stuff locally if possible I will often end up buying it from smaller shops, their range is often larger and everything is cheaper because they don’t blow so much money on shop fit outs and attention to detail. Most of these small shops have absolutely no problems price matching online retailers.
I can’t help but notice when asked about computing and electronic stores he only mentions Dick Smith, Harvey Norman and JB – the giants. These are the shops I feel struggle to innovate (but JB HiFi is better than the others)
I’ll give him another one to think about: MSY – they are not as big as JB HiFi by any means, but have cities across the country, multiple in most states.
Let me compare 2 random notebooks:
Acer Aspire TimelineX AS3830TG
MSY: $849
Harvey Norman: $1,498
Acer Ultrabook S3-951 2464g34iss
MSY: $995
Harvey Norman: $1,599
MSY is located in Australia and pays exactly the same wages and taxes that Harvey Norman does, yet there is such a massive difference in the price. The only real difference between the stores is MSY isn’t located in the middle of shopping centers or oppositte major roads, and they don’t really offer much of a retail experiance, it’s just a warehouse counter, you say what you want, they get it.
If I could offer a suggestion, it would be to create something similar – let’s call it a “Harvey Norman Lite” with the focus being effeciency rather than dazzling lights.
Examples of effeciency being;
* Only 1 store in each state, to push scale through the roof.
* Put $0 into store fitout, have people rolling rusty shopping trolleys on concrete isles
* Don’t employ checkout people, use self checkout machines
* Put it somewhere where rent is cheap, ie the middle of a industrial complex with smoggy air, don’t put it in the middle of the CBD and complain that rent is high.
… and if you did that, I think you would end up with a store that is somewhat attractive for people who would otherwhise shop online, that is, assuming the savings were passed on, but I think we are all dreaming expecting that.
You honestly think Harvey Normans is flash? Does MSY provide interest free for any length of time or at all?At anybody / Annabelle said only 6% of retail sales were bought online,hardly the apocalypse,biggest problem right now is people are just not spending. I thought Smith was irritating too but mostly because of his in your face know all attitude,and really the ABC wheels in all sorts of people for their opinions so why not Dick?
Renai
You don’t seem to understand why I was on The Drum on Monday 9 January. You state,
“For reasons which I have been unable to ascertain, given that he sold his flagship electronics chain to Woolworths 30 years ago…, the ABC’s normally excellent discussion show The Drum called on Smith to proffer his expertise on the issue of online retailing”.
In fact, the reason I was invited onto the program is quite simple. I had written an opinion piece for The Australian (“Dark Side of Online Deals – We’ll pay a price for tax-free internet shopping: jobs will go or wages will be cut” – see http://www.theaustralian.com.au/national-affairs/opinion/dark-side-of-online-deals/story-e6frgd0x-1226239331087) which was published that morning.
My opinion piece created quite a stir, including letters in The Australian the following morning stating words to the effect, “Dick, thanks for saying it as it is”. Renai, the reason that our present bricks-and-mortar retailers of electronic consumer equipment find that they are in “less than perfect trading conditions” is because we are starting to reach the limits of growth. Surely that’s obvious?
No-one has benefited more from growth than I have, but I do know that perpetual growth one day has to stop.
Have you ever wondered why companies like Woolworths are now not only selling electronics but also selling petrol and are now the largest owner of poker machines in Australia? Yes, it’s all about trying to secure perpetual growth because shareholders will complain and sell their shares if companies don’t continue to grow. But perpetual growth is impossible in a finite world.
It’s interesting that the thirteen responses that I have read so far on your blog seem to agree with what I’m saying, and that is I’m not in any way advocating that the present situation in relation to duty-free and GST-free imports be changed. I’m simply pointing out the implications of not having change.
When Gough Whitlam reduced the duty on TV sets and electronic components, he enabled me to make a small fortune from moving away from my job on a factory floor pop-riveting valve sockets into two-way radio chassis and commence a business importing from countries that could do the job so much cheaper and better. What I’m pointing out is that this could be happening all over again. But the difference is people such as yourself don’t seem to want to be open about the advantages and disadvantages which come from opening up our markets.
I believe there is a chance that the face of consumer electronics retailing as we know it today will change. You will have companies like Apple, which are an exception and absolutely brilliant in the way they vertically integrate – there is simply no way Harvey Norman, JB Hi-Fi or Dick Smith Electronics can copy this. They would have to invent their own range of equipment to manufacture and have a genius like Steve Jobs running the place. It’s most likely that electronics in future will be bought from huge warehouse-type operations like Costco or Wal-Mart.
It’s just a fact of life. I will continue to say it as it is despite the fact that some people don’t seem to like this.
In the meantime, you may be able to advise what is factually inaccurate about my article in The Australian or the statements I made on The Drum.
Dick Smith
People are quick to swat away the argument that imports under $1000 should be subject to GST because they believe it’s only a minor part of the price differential. But that’s not an argument for leaving it GST free.
I’m all for free markets having access to our consumers, (I import or digitally purchase many items myself – that’s the way the world is going whether we like it or not.) But I don’t believe overseas companies should be effectively subsidised by being exempt from a tax that local businesses are subject to.
The problem, as the Productivity Commission pointed out, is that it would be a difficult and expensive tax to enforce. It’s not clear what the fairest and most efficient way to do it is. All of these points were raised by yourself and the panel, but the debate was overshadowed somewhat by the theatre of a shouting match.
If you wanted to easily apply GST to online sales, you would just need to get the payment gateways to do it.
IE paypal, visa, mastercard etc.
I would not be against GST on online purchases, I agree entirely it’s unfair that a online shop does not pay the same taxes that a bricks and mortar shop does- but I must say I doubt it will make a lick of difference, given the cost difference is so insane between the ‘big’ retailers and overseas shops that it simply cannot be chalked up to GST alone.
One thing to note, I see the $600m GST figure mentioned alot and emphasized as a ‘horrific loss’ – this equals just $27.30 per person in Australia – I don’t think it’s the big number it seems like when you look at it like that.
From mjd above:
> But I don’t believe overseas companies should be effectively subsidised by being exempt from a tax that local businesses are subject to.
My a minor comments regarding GST are:
a) overseas companies are already paying Tax – overseas.
Therefore – why don’t we simply manufacture these goods here in Australia – problem solved. (not so simply solved I know)
So rather than the government be upset about ‘horrific losses’ – should they not be trying to encourage manufacturing here, and exports? Again – Simple.
hey Dick,
thanks for your comment! It’s very much appreciated.
With respect to you being on the ABC, I can see why they invited you — you’re a high-profile Australian entrepreneur whose name is associated with consumer electronics retailing. And yes, you did write that piece yesterday morning.
However, given that you have not worked in the consumer electronics industry for several decades, much less owned retail outlets in it, I would question whether you are adequately informed to comment on the sector, and in fact whether you should be doing so. My problem with the ABC’s discussion panel earlier this week was that nobody — nobody — on that panel actually worked in the consumer electronics sector or owned assets in it, and yet it was being presented as an informed discussion.
I feel this substantially invalidates the value of the discussion held on The Drum.
With respect to some of your other statements, I think in most cases that much of the Delimiter readership and I personally are more or less in agreement with your views. As I have noted above, the consumer electronics retailing sector is currently changing drastically.
I think perhaps where we are in disagreement is about whether or not this is a good thing.
My article — which your comments didn’t really address — highlighted the fact that many of the major retailers are locked in a diminishing paradigm — the creation of ‘marketplaces’ for consumer electronics goods and services. These ‘marketplaces’, of which Harvey Norman and the Dick Smith branded stores are good examples, are going away.
I think it’s safe to say that many, if not most, of my readers think this is a good thing. Not only are these retail outlets middlemen, but they are annoying and frustrating to deal with and get in the way of the relationship between the manufacturer and the consumer.
Perhaps unlike you, I am truly an economic libertarian. I don’t believe industries should be protected when they become uncompetitive, as the consumer electronics retail sector clearly has. I don’t believe the government should try to keep jobs in Australia for the sake of it. I think we should acknowledge the imminent demise of many jobs in the retail sector and try and develop other, higher value sectors instead.
I don’t want the government to focus on keeping Australian jobs which are basically just low-skilled labour putting boxes on shelves. I want our government to focus on developing a highly-skilled economy based on high levels of education and training, which it would be hard for other countries to compete with. I want Australia to become a haven for high-level software development, content creation, etc, rather than a home for retail employees whose jobs are rapidly disappearing.
In this vein, the GST issue which you have spent so much time on is little more than a sideshow. If you really have some ideas for Australia’s future — and aren’t just complaining that the Government isn’t doing enough to prop up one of your pet legacy industries — why not write another opinion piece, this time for an informed audience like Delimiter’s (instead of the somewhat conservative audience of The Australian) exploring how you think we truly could make Australia a smart country?
I guarantee I will publish it, if you do.
Cheers,
Renai
Geez renai, you’ve even got dick on here. You’re really building a good ol’ fanbase here, might have Malcom Turnbull or Gerry Harvey soon. Kudos on the people who comment, shame their opinion is derogatory toward my industry =(
Turnbull is actually a regular commenter on Delimiter :)
After seeing and reading Dick Smith’s comments, there’s one thing where I would be really interested in his explanation (I apologise if the following example is not 100% on electronics, but you’ll get the idea ;):
My wife and I recently renovated our bathroom. To do so, we needed to source all kinds of bathroomware (mixer, shower head, basin, toilette cistern etc). We found the European designs most appealing and indeed you can get all the major European brands down here in Australia. Only that they are ridiculous expensive: The whole set of appliances would have set us back about 4500 dollars when bought from a local retailer in Sydney. We found an overseas Internet retailer where we could purchase the exactly same brands for just 1600 AUD plus international delivery. Obviously this is over the magic 1000 dollar limit – so we had to pay GST on top. Now guess what: Even with paying delivery and GST we still only paid about 2900 AUD – which is a healthy 35% cheaper than from the local retailer!
Dear Dick: Can you please explain to me why?
And before you give in to any urge to blame this on lower labour costs for overseas shops in Hong Kong, as you did on the Drum, please also note this: Not only were the bathroomwares designed and manufactured in Europe, mostly Germany, but also is the retailer, from whom we bought, located in Germany too. So we paid German wages (in Euro) – plus an Australian shipping company for delivery – plus GST…
Your call.
+1 At the heart of the issue is why are products here so expensive, when compared to the same products overseas. If they were even close, a large proportion of people that currently buy overseas would buy locally. But that just isn’t the case.
As just another example, a Braun electric razor I purchased recently is available at Bing Lee in Sydney for over $500. The same electric razor in the US is < $199.
Is the answer that businesses want to make 150% ++ margin on products here? Or is it that there are so many middle-men in each transaction each taking their cut? Or are costs really higher here than anywhere in the world?
Perhaps its just a case of stupid Aussie us. We as a people get the government we deserve, the press we deserve, and now the prices we deserve.
I agree completely – if a product was available locally for within, say, 10-15% of the OS price, I would much prefer to buy from a local retailer (whether online or not).
However, I am constantly finding products which cost 30 – 200% more than they do from overseas suppliers, which is absurd given our exchange rate at the moment. It’s really difficult to justify paying so much more for a product when someone in the middle is obviously gouging big margins that don’t really need to be there.
Then there is the slightly different absurdity you seem from some software companies who sell directly to consumers online – Adobe for example, charge far higher prices in AUD than they do in USD, despite currency parity. I’ve managed to convince their online store to sell to me in USD and have saved in excess of 25% by doing so. That’s far higher than any GST which may (or may not) have applied to the transaction – and something I can’t really explain, other than regional price-gouging.
I agree – I’m prepared to pay a little more to buy locally, as I believe there are genuine costs associated with importing products to Australia – a country that is geographically remote from much of the world and has a small consumer base.
But what really gives me the craps are companies selling software with no physical merchandise charging us more, even though our currency is currently stronger than it has been for a long time! Adobe & Apple are prime culprits, but they are by no means alone.
But lets keep it in perspective – I think the problem at the moment is more a general downturn in retail purchasing, rather then all Australians buying online. We are still a long way from that scenario, despite the retailers best efforts to make it a reality. :P
I agree. I also would be more than happy to buy locally if the price is fair. And yes, I assume that importing to Australia will cost a bit more than to, say, the US – although the distance from the typical manufacturers in China is not that different ;) It’s just a matter of scale.
But I share the same suspicion that there’s some massive price gauging going on down here which I am simply not prepared to support. The other extreme example is indeed electronically distributed software and content (think iTunes). It’s delivered from the same data centres than in other countries, the same people look after those machines, its the same software, our GST is lower and the dollar stronger, but still we pay more. That is unless one manages to organise an overseas account…
On the other hand, I also agree to the comment that the deeper problem for retail is not Internet shopping but general reluctance to spend money on even more ‘fancy stuff’ (I think my razor is now approaching it’s 9th year ;). And that applies to both your local shop around the corner and to any overseas website.
Very interesting comments from Dick, and I can’t say I disagree with him on the whole.
The term “electronics retailing” is a little misleading though. I was an employee of Dick Smith Electronics, way back when he had one store in Gore Hill, and later in the Artarmon Office, and in those days DSE was a true “electronics retailer” – you had to have some electronics knowledge, be it professional, hobbiest or ham radio, to even get a foot in the door with the company.
Now Dick Smith Electronics, the so-called “techsperts” are little more than box movers. Go to any one of their “Powerhouse” stores and you can buy a wide range of consumer items, from mobile phones up to plasma TVs, CDs and DVDs – but when was the last time you needed an electronic component ? A resistor, capacitor, integrated circuit ? Or just to ask for some reliable and professional advice ?
You don’t go to stores like DSE for these for two reasons:
A. The staff don’t know anything about it – at many of the stores, unless you go in for something specific, you leave wondering how some of these people learned to walk upright ! No product knowledge, no desire to help the customer – it’s almost like they’re holding a sign that says “leave your money here and piss off” – that’s the feeling I get anyway.
B. There’s no profit margin in electronic components, ham radio and the like. Call it a sign of the times, but people want instant product gratification without having to do anything – even read the manual.
This is, of course, not just restricted to DSE – Harvey Norman are a prime offender too. Many times I have seen proof of the saying “Only go to Hardly Normal if you know what you want and don’t need to speak to anyone”. Is this because they are on, essentially, a commission-only remuneration scheme, or that they just don’t give a damn ?
Is it any wonder people are resorting more and more to online purchasing – whether it be large items (TVs, DVD players, etc) from KOGAN, components from Jaycar Mail Order (although, to be fair, Jaycar is owned by an ex-DSE Manager and their staff DO know what they’re talking about), or gadgetry from places like DealsExtreme.
Yes, there are inherent risks dealing with mail-order companies, especially those not in Australia (credit card fraud being one of them). And you can’t go have “touchy feely” of the product before you buy, but that’s the price you pay for getting things cheaper. It’s a judgement call that the individual must make.
Retailers are starting to fight back against the growing trend of “look here, buy elsewhere” by charging a “fitting fee”, as one show retailer put it. Pay a $50 fee to try on shoes which gets taken off any purchase you make now or for some (unspecified) time period in the future. Buy elsewhere and you do your dough.
Would I buy clothes or shoes online ? No, probably not, as I am not one of those homo sapiens blessed with a perfect body or feet and need to try on what I buy first. Electronics ? Sure, if the discount is good enough and I have done my research, and am willing to “take the risk” – and, more importantly, I can’t get a similar deal locally !.
Bricks and mortar stores have almost reached saturation point, especially in Sydney. The move to Factory Outlets (Seconds World type stores) and online selling is only going to grow exponentially from here.
Can this trend be stopped, or at least the impacts of it be mitigated ? Yes, I believe so.
A. Support your local business. I don’t necessarily mean just Australian stores, but stores in your local area. For example, I will shop locally in the Hawkesbury area wherever possible (subject to product availability and price), rather than in the bigger stores in the city. You develop a rapore with the staff and that could come in handy later – also, they’re likely to be your neighbors !
B. Dick’s catch-cry of “BUY AUSTRALIAN” isn’t that far off the mark, with a couple of caveats. IF the local product is as good as the overseas product, and IF the price isn’t outrageously higher, them spend a few more cents and help keep Australian businesses afloat. We don’t want to sell the whole country off, do we ??
C. BARGAIN. Whenever I am about to make a major purchase, I DO MY RESEARCH. Most stores will happily price match to get the sale if the competitor’s price is genuine. Print out that ad from their website and take it to . Tell them to match the price and you’ll buy from them. You won’t get it for below their cost, but you will most times get a bargain.
All that remains is how to stop people looking in stores and buying online. Why do you think you can rarely get a sales assistant to serve you in some stores ? Because they’ve had to cut back on their staffing as people come in and browse, but buy online.
And this is something I have no solution for, other than for the retailers to make the in-store experience somehow more attractive to the online one. That means starting with staff who know their products and CARE about giving the customer what they need.
And therein lies the problem.
I agree with most of what you have said.
There is one small point though, before the staff care about the service they provide, the company has to care about the staff. This is where the emergence of online companies has had the most impact. when you order online, someone takes your order, charges your payment method, picks the goods in the warehouse, boxes it, ships it and moves on to the next order.
They don’t “phone a friend”, they don’t look at your torn jeans and T-Shirt and “size you up”, if you order online without wearing pants, they really don’t care.
(other members of your household might)
The way to change the fortunes of the retail sector in australia is not to drop the price, but to make the experience one that means the consumer doesn’t need to shop online. They buy locally, and enjoy doing so. In my time in the ICT industry, working with Harvey Norman, Apple, Harris Technology, IPC computers, PC Connections, I never gutted my price – the customers still came back to me for other items. Why? Because I actually listened to their needs and met them.
Re the DSE stores and the Harvey Norman stores, it is almost as if the new stock of sales people have arrived with no skills, they receive no support or training, and the retailers are suffering, without understanding why. Gerry Harvey used to get his proprietors to run executive training sessions, teaching us about the nordstrom approach to sales, selling techniques, etc. etc. How much of that training exists for new staff? Frontline personnel need training. Then, the experience a consumer faces makes them feel that there is no need to go online, their trusted advisor has helped them and is there to continue to help.
3 rings people. a phone should be answered by 3 rings at the latest.
I think people have missed the elephant in the room!
Re-read Renai’s article.
HE EATS BRUSSEL SPROUTS!
I do believe Renai is a vegetarian….
The shocking truth revealed.
Wow, that is an Epic Rant!
Sadly, some good points ruined in a very messy piece of TV. The host had no control at all. :(
In the end we all lose. We want to save money by buying online which is a perfectly logical thing to do. Online stores are grey importing everything and bypassing local distributors and branch offices of the big companies. Hundreds if not thousands of jobs are being lost because of this in the tech merchandising sector.
Eventually none of these jobs will exist except for the privileged few still working in a local office. I guess no problem as we can all become courier drivers for Australia Post and DHL which I understand is a booming job market now because of import deliveries to direct customers.
You can’t swim against the tide though. It’s like how the music industry tried valiantly to cling on to CDs and ignore digital music sales. Retailers either adjust their business model massively to accommodate the changing way consumers want to shop in a global economy, or they slowly die — simple as that. There’s really no “good or bad” about it — it’s not something that any one body can stop. It’s a facet of globalisation, as Renai says above.
Yep, if you don’t want manufacturing industries (or can’t be bothered supporting manufacturing industries) in Australia – keep buying imported products and you will get your wish.
Reap what you sow.
Sadly, manufacturing is already gone in Australia — we can’t even manufacture a washing machine here. The nature of the global economy means easily replicable process work is inevitably going to be done in the lowest labour cost countries. No amount of shopping in local bricks and mortar stores is going to change that.
This may be more reflective of once again, Australia failing to take on advice learned from elsewhere. The General public assuming they know best and it becomes the blind leading the blind when it comes to industry development and management.
The Music industry is a perfect example of again thinking they know what the consumer wants, not adapting to the rise of digital media and not embracing change. They consistently backed CD’s over MP3s, sighting everyone would lose their jobs because people didnt want cd’s. Last I checked, I still bought cds i liked in a store, and the sanity / HMV near me usually is packed. HMV and sanity provide options for cheaper cds online, but the electronics sector of retail? no, they dont want to change.
I’m in Telecommunications, we dont have issues with a shrinking market – ours is expanding like crazy. The electronics sector maybe, but this is only for stand-alone products. People still want to deal over the counter in Telco. They want to know what they’re getting, they want to compare and they want to shop around before settling with a dealer / provider. They still come into store. Warranty support, advice, technical assistance are all easier in a store.
The market is changing, Dick needs to realise that alot of trade will be online and how best to understand, develop a plan and execute to make money.
Good read :)
Cheers, much appreciated :)
Admiration and respect for Dick aside Renai, I’m with you on this issue. However I reckon we have to figure out pretty soon what it is we are going to be good at in Australia.
Having now been a fish out of water in higher ed for a couple of years observing the way government allocates money to uncommercial unviable ventures scares me. Staking money contingent on launch or acquisition is an entrepreneurial bridge too far for our conservative comfy politics… ‘why risk incubation when you can safely waste?’
All the taxes in the world won’t create innovation.
Venture capital and generational angel investing has to become the norm here if we are to experience even a fraction of Silicon Valley’s tech ecosystem.
Very interesting article, made more interesting and thought-provoking by the comments. And top marks to Dick for actually commenting, it’s great to see that kind of involvement, even if not every issue raised was addressed.
My one big issue is that very few of the commenters have addressed what I see as Harvey Norman’s prime reason for survival.
Over the last decade or so my wife and I have spent around $20 000 at Harvey Norman because they offer their fantastic no deposit, no interest, no repayment schemes. We are pretty obsessive about paying it back on time (often early) and have, therefore, never had one problem with the scheme.
(Must less often we have used the same scheme with monthly payments. Less often but we have used it.)
Now I’m sure there will be hundreds of people who think I’m being ripped off because I’m impatient. (As I once read “Interest is a tax on impatience”.) And you know what? They’re right. And I don’t care.
I’m perfectly happy to pay extra later for a product I want now and, to me, this is HN’s biggest asset because no-one else offers it (here in Perth, at least.)
As an aside, I might mention I also do my research online and then buy from Harvey Norman, which seems a bit contrary to what some other shoppers are doing :-)
I suspect people are right and HN is probably doomed but I, for one, will miss them when they’re gone.
Despite some incorrect assumptions and generalisations in this article, it was an interesting read.
hey renai, I wrote this blog post http://peterhautech.wordpress.com/2010/08/30/harvey-norman-and-the-mystery-shopper/ back in 2010. I wonder why nobody took any notice? oh. right. a blogger is just another person out there in the internet. no-one reads blogs, do they?
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