Tuesday, January 4, 2011

The Right to Shop: Retailers vs Consumers

This year, I did all my Christmas shopping online.
And I’m clearly not the exception to the rule, if the recent backlash over the big boys’ attempts to impose GST on internet purchases is anything to go by.

Retailers are up in arms about online shoppers escaping GST on purchases, saying that local retailers are at a disadvantage because online purchases are not subject to GST – making it more affordable for shoppers to buy from overseas. Currently, products purchased on international websites having a value of less of $1,000 are not subject to GST when arriving in Australia. The big boys are asserting that an increase in online shopping will result in job losses in Australia, despite the fact that, according to Nielsen, 85% of Australians plan to spend less than 10% of their monthly spend on online shopping (http://hk.nielsen.com/documents/Q12010OnlineShoppingTrendsReport.pdf) .

For me personally, the reason I shop online is not because of the potential to save a few bucks on gifts for the people I love, but for the convenience of having my purchases delivered to my door, often at no additional cost. There’s no road rage over trying to find a parking space, no slow-walker rage over people who seem to think Dec 24th is a time to browse, and there’s no check-out rage from lining up for 39 minutes to buy a pair of shoes, only to get home and find two different shoes in the box (this actually happened to my mum at the DJ’s boxing day sale).

Regardless of the considerable savings to be had online, the 10% GST is missing the point. 10% on most items is a nominal charge, one that most customers would be happy to pay if they could be assured of good customer service, convenience and accessibility. I’d pay 50% more if I could find a salesperson that wasn’t 15 years old, bored and with no knowledge of the products they sell. According to The Australian, “online shopping has little if anything to do with tax evasion and a lot more to do with the Aussie dollar reaching parity with the US dollar, and an increasingly tech-savvy and cost-conscious consumer” (http://www.theaustralian.com.au/business/opinion/push-for-internet-tax-off-the-mark/story-e6frg9if-1225981960650).

Like me, most consumers are not driven only by price when heading to cyber space – it’s an issue of value.

The real issue here is that retailers have created a monster. Continuous discounting, the ‘result’ of slow sales activity, has seen retailers advertise sale after sale in the lead up to Christmas. Consumers are not silly. Why would they buy at full price, when everywhere you look there are signs screaming '50% off!' Retailers have created a rod for their own back, with consumers now being so used to looking for a bargain that if there isn't one readily available, they will just head online for considerable savings and convenience.

Essentially, consumer buyer behaviour research suggests the issue is one of perception equalling reality. If consumers have a perception that the price of their favourite brand is actually the sale price (determined by repeated sales at the discounted price, where the consumer comes to associate the discounted price as the actual price), then when prices return to normal, the consumer does not experience the same level of value for money that they once did and may decide not to buy.

Retailers would do far better to understand this customer buying behaviour, particularly the influence of the web and social media and it’s affect on the way we live. The retail environment is changing not because of a 10% charge, but because people now have 24 hour access to their favourite brands, and with much lower barriers to entry on the web there is more variety to be had than trawling the mall. This is in part due to increasing retail rents, according to the ABC’s Unleashed blog: “Australia has some of the highest retail rents in the developed world with a recent survey revealing that Australian CBD rents rivalled those in leading international centres. Sydney CBD retail rents, for example, were second only to New York, with Brisbane and Melbourne CBD rents higher than cities like Milan, Rome, LA and Chicago” (http://www.abc.net.au/unleashed/42688.html). With PayPal predicting online sales to grow from $28.9 billion last year to $36.8bn in 2013, this would suggest that a change in retail models is in order. Additionally, according to Neilson Wire, we now have the ability to get impartial reviews of products, which is influencing consumers in pushing the ‘buy now’ button. They found in their March 2010 report that “one of the great benefits of online shopping is the ability read others’ reviews of a product, be they experts or simply fellow shoppers. These opinions are most important when it comes to purchasing consumer electronics: 57 percent of online respondents consider reviews prior to buying. Reviews on cars (45%) and software (37%) rounded out the top three most important online influences when making a purchase.”

It seems that one of the major arguments of the retail consortium is the jobs that will be lost overseas if online purchasing is allowed to continue without a GST. What about all of the jobs that could be created in IT, distribution etc. that could come from investing in embracing the online shift, instead of fighting fate? And where are the big retailers sourcing their stock from? I would bet that the majority of it does not come from the small, local manufacturer.

Ultimately, there is a shift away from corporations towards consumers, which is the basic premise of web 2.0. The power is no longer in the hands of the biggest players, with the web actually creating the level playing field for those smart enough to know how to compete. Marketers are still trying to work out how to leverage off this new beast, but with connecting online now a way of life, it’s inevitable that retail will have to catch up to this trend.

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