No quick fix for retailers

You’ve got to have some sympathy for Australia’s retail sector right now. Just about everything that could go wrong this year has.

Government stimulus has dried up. The Australian dollar keeps rising, causing deflation. Interest rates keep rising, damaging consumer confidence. Even the weather – a lack of the warm weather needed to shift summer clothing and goods – is conspiring against the nation’s shopkeepers.

So it’s hardly a surprise that the Australian Retailers Association and industry heavyweight Gerry Harvey are leading calls for the Government to increase the threshold at which GST is payable on purchases made from overseas, and particularly on overseas websites.

The ARA says it’s costing the Government more than a $1 billion, but more importantly (from them at least) it’s costing local retailers, both online and physical stores, that badly needed sales.

But while it’s easy to have sympathy for the retailers (well, less so for Gerry – he’s been warned online retail would transform his sector for many years, and he’s only now starting to get it), it’s harder to believe that lowering the threshold would actually make much difference.

Firstly, as Patrick Stafford points out today, data on average online transactions suggest the threshold would need to be lowered to below $400 to have an impact on shopping behaviours. That would be a dramatic step for the Government – who suddenly seem very lukewarm on the whole idea – to take, particularly as it would be extremely unpopular among consumers.

Secondly, dropping the threshold is short sighted. The strength of Australia’s dollar is certainly making shopping overseas attractive right now, but what happens when the dollar weakens at it almost inevitably will in the future? How often will we chop and change the threshold? Once a month? Once a quarter? Once a year?

And finally, what evidence is there that adding GST to overseas purchases would reduce the level of overseas shopping? Global online retailers with global buying power – like Amazon – are probably always going to trump Australian retailers on price and range.

Unfortunately, the internet means retail is a global market. And I don’t think changes to a GST threshold are going to put that genie back in bottle.

Australian retailers, whether they are online, offline or (hopefully) both, need to keep playing to their strengths and use this to drive their competitive advantage.

Faster shipping times, a focus on Australian-made products, competitive pricing, specialisation in certain areas and above all else, extraordinarily high levels of customer service is where this battle can be won.

It’s not going to be easy, but as the dollar falls a touch, and consumer sentiment improves into 2011, conditions will improve.