Laying it on line for cyber shopping
A paper released by the Australian Bureau of Statistics on Monday on online retailing estimates online retail in Australia is $10.8 billion, or 4.5 per cent of all Australian retail sales if we include imports under $1000.
The figures are incomplete and are a tad less than estimates from other research houses, but they are the first from the ABS and that makes them official.
The figures suggest domestic online spending is about $4.6 billion and another $6.2 billion is spent on imports of goods under $1000, which translates to $620 million in lost GST revenue. GST only applies to imports valued at $1000 or more.
This is in sharp contrast to the UK, which has a threshold of £15 ($25), Canada, which has a $C20 ($21) threshold, and the US, which has state-based taxes and has legislated to have them included in online purchases.
At a time when the Australian federal budget is estimated to be in deficit to the tune of $30 billion, the lobby groups will be lining up waiting for the election to finish to rekindle the debate.
The reason is simple. Any change to the threshold will result in a price increase that consumers pay for most offshore online purchases. But as Goldman Sachs analyst Phillip Kimber says, the federal government is evaluating plans for reforms to low-value parcel processing and no decision can be made regarding lowering the tax threshold until the analysis is complete. The final report is expected at the end of the year.
Premier Investments boss Mark McInnes wants to lead the charge. After looking at the ABS report he believes the year-on-year growth rate demonstrates this is a structure problem that is only getting bigger. "Urgent action is what's needed to bring Australia into line with other sophisticated digital economies," he said.
What he means is that if the government does nothing it will have a massively detrimental impact on retailers. Indeed, in a recent speech he quoted an Ernst & Young report that estimated that by 2015 a further 33,000 jobs would be lost if the government keeps the threshold at $1000.
"There are other reasons, of course, but I want to call out one issue, yet again, that derives completely from the government's attempt to pander to populism rather than adopt a serious public policy approach," McInnes said.
The issue is allowing overseas retailers to import - duty and tax free - the same products for which Australian retailers are forced to charge customers duty and tax.
McInnes is of the school of thought that believes the government-imposed distortions are the reason why Australian retail is hurting. "Most Australian companies today, including ours, have globally competitive website e-commerce operations. The problem is the cards are stacked against the local online industry."
McInnes might be right about domestic retailers not having a level playing field but it is questionable whether "most" companies have globally competitive website offerings.
The brutal reality is local department stores have been relatively slow to migrate to online offerings, with online accounting for an estimated 1 per cent of total sales. In contrast, US and British department stores generate up to 10 per cent of total sales from online operations. In the case of John Lewis in the UK its online sales are now about 16 per cent.
In a different report Kimber investigates why the numbers are so low in Australia. His analysis suggests a key contributor is the amount of investment made in technology and online capability. "US and UK department store peers allocated a significantly larger portion of their cash towards capital expenditure," he said. The reason? "The focus on maintaining strong dividend payout ratios, given the large weighting towards individual 'retail' shareholders and the tax advantages from fully franked dividends," he says.
It wasn't until last year that David Jones and Myer provided investors with strategic plans for the omni-channel offering and while both have started investing money revamping their websites they still have a way to go.
This was no better illustrated than Myer's website crashing on June 30 minutes after launching its annual stocktake sale due to "unprecedented traffic". It took two hours before the site was back up, but by then it had annoyed a number of would-be shoppers. It followed a similar crash last November by Click Frenzy.
While online shopping is taking customers away from the shops it isn't just cheaper prices that are causing the drift. Poor customer service can't be underestimated. Some companies do customer service well, but there is a lot of pent-up anger from customers who have taken to overseas shopping to avoid the hassles of in-store shopping from staff who would prefer to be somewhere else.
Frequently Asked Questions about this Article…
According to the Australian Bureau of Statistics paper cited in the article, online retail in Australia is about $10.8 billion when you include imports under $1,000 — roughly 4.5% of all Australian retail sales. The ABS estimate breaks that down to around $4.6 billion in domestic online spending and about $6.2 billion spent on low‑value imports.
GST currently only applies to imports valued at $1,000 or more. That means many offshore parcels under $1,000 arrive duty- and tax-free. The ABS figures suggest the $6.2 billion spent on those low‑value imports translates into roughly $620 million in missed GST revenue.
The low‑value threshold is the import value below which goods enter duty- and tax-free — in Australia it's $1,000. By comparison the UK charges VAT from about £15 (roughly $25), Canada from about C$20 (roughly $21), and the US applies state sales taxes and has moved to include them in many online purchases. The article highlights Australia’s threshold is much higher than those peers.
Yes. The article notes any change to the threshold would generally result in a price increase for most offshore online purchases, because imports that were previously tax‑free would start attracting GST (and possibly duties). The federal government is evaluating low‑value parcel reforms and expects a final report at the end of the year.
Retail lobby groups and some executives say the current rules distort competition by allowing overseas retailers to sell products duty‑ and tax‑free that local retailers must charge GST on. Premier Investments’ Mark McInnes warned of structural damage to local retail, and an Ernst & Young report quoted in the article estimated a further 33,000 jobs could be lost by 2015 if the $1,000 threshold remains unchanged.
The article says local department stores have been relatively slow to migrate online — online sales are estimated to account for about 1% of their total sales. By contrast, US and UK department stores can get up to around 10% of sales online, and John Lewis in the UK is doing about 16% online. Myer and David Jones only released omni‑channel strategic plans recently and are still ramping up investment.
Goldman Sachs’ Phillip Kimber highlighted that a key reason Australian retailers lag is lower capital expenditure on technology and online capability. US and UK peers have allocated a larger portion of cash to capex, while some Australian firms have prioritized consistent dividend payouts. For investors, a retailer’s willingness to invest in e‑commerce and digital systems can be a critical long‑term competitive indicator.
The article points out that it’s not just cheaper prices drawing shoppers offshore — poor customer service and in‑store hassles are also a factor. Technical failures and poor online experiences (for example Myer’s website crash during a major sale and a previous Click Frenzy crash) have irritated customers and pushed some to prefer overseas retailers with smoother online shopping.
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