The Retail Leaders Forum – Part 2: The elephant in the room

The transparency created by online shopping and the parity of the Australian and US dollars have cast light on one area dear to all shoppers’ hearts: the comparative price we pay for things.

Note that I am talking about the comparative price, not the absolute price. We shoppers pay different prices for the same things in different environments. A Crown Lager from a bottle shop is around $3 a bottle, while it’s $8 a bottle served to your table at the Opera Bar overlooking Sydney Harbour.

It’s when we are charged a higher price for the same item in a similar environment that we tend to become upset. Initially what we actually do is question the trust we have in the brand we’re buying and the trust we have in the establishment we’re buying it from. What we then do is decide whether our trust in the brand we are buying has been compromised or our trust in the retail brand we are buying it from is compromised. And that takes time, sometimes several purchase cycles or many months.

During the Retail Leaders Forum last week, every single retailer who buys international products and brands from Australian-based manufacturers or distributors spoke of the higher prices they paid in Australia versus the lower price paid by retailers – and therefore shoppers – in the US, UK, Canada and almost every other OECD (Organisation for Economic Co-operation and Development) country. Not one retailer who was vertically integrated – that is a retailer who sourced their own products from factories in Australia or anywhere else in the world, and then sold them under their own retail brand name in Australia – even mentioned price differentials (e.g. Kathmandu or Smiggle, who manufacture items under their own retail brand names).

In fact, just using the price differential between importing international brands versus buying them in Australia has spawned many very successful online discounters in Australia, such as Kogan and Catch of the Day. These sites proudly offer nothing to online shoppers other than a discounted price for international brands, a point of difference that has been created by the international brand owner’s own pricing policies. This point of difference has meant Kogan and Catch of the Day (over a very short period of time) have built brands that shoppers trust.

Let me share with you one anecdote from a senior retailer who attended the Retail Leaders Forum. When she approached international brand owners to begin importing their product to her retail stores, she was told that prices were higher for products sold into Australia, as “we have educated the Australian shopper to pay more for our products”. I will translate that into Productivity Commission speak: “as a manufacturer, I ask an Australian to work more hours to buy my product than his or her American or European equivalent”.

So, what is happening?

Well, the strong Australian-based chief executives, sales directors and marketing directors of international brands are working to influence their international regional directors and vice presidents to bring prices back into line with the rest of the world. This is a significant challenge, as it is often hard to wean parent companies off historically high margins in order to protect the long-term brand equity. At the same time, retailers are looking at how they can work their way around parallel import restrictions or directly source similar quality products to replace the international brands whose Australian prices remain stubbornly high compared to other countries.

Over time, many international brands will disappear from Australian retailers’ shelves because the international brand owners cannot be convinced to give up short-term profit for longer term, sustainable profit. Other brand owners have already lowered their sell price to Australia and will remain significant brands on our shelves and in our homes. Transparency in pricing is facilitating this gradual change to the benefit of all Australian shoppers.

In his role as CEO of CROSSMARK, Kevin Moore looks at the world of retailing from grocery to pharmacy, bottle shops to car dealers, corner store to department stores. In this insightful blog, Kevin covers retail news, ideas, companies and emerging opportunities in Australia, NZ, the US and Europe. His international career in sales and marketing has seen him responsible for business in over 40 countries, which has earned him grey hair and a wealth of expertise in international retailers and brands. CROSSMARK Asia Pacific is Australasia’s largest provider of retail marketing services, consulting to and servicing some of Australasia’s biggest retailers and manufacturers.