TECHNOLOGY SPECTATOR: Online retail's import crossroads

Technology Spectator

Australian retailers and distributors of consumer electronics products are facing a new challenge as a growing number of consumers take advantage of the high Australian dollar to purchase gadgets from grey importers.

The term "grey imports” is a derogatory one used by local branch office distributors of products, with "parallel imports” the more neutral description. In many, but not all cases, a grey/parallel imported product is identical in specifications and features to the product sold by official Australian distributors.

The parent company making the product still earns revenue from the sale of parallel imports but loses the ability to stagger the release or differentiate pricing by country/region. The revenue gets booked to the company's subsidiary in Hong Kong or the US rather than in Australia and the jobs lost at local Australian distributors and retailers is the collateral damage.

MobiCity was one of the early entrants into the Australian market for parallel importing of mobile devices, with core staff located in Queensland and stock shipped to the customer by FedEx from Hong Kong.

The retailer told Technology Spectator that "sourcing from one region and selling into another can often be termed ‘grey market' selling, but when combined with a local support network and warranty, the service can be as good or better than the standard”.

"Disruptive business models are often lauded, but giving people what they want, when they want it, at a price that they can afford and backing it up with strong after-sales support is what all retail companies should strive for,” MobiCity spokesperson Alistair Eldred says.

"The manufacturer's local representatives take an entirely different approach however. They're trying to protect what could be inflated margins, inefficient distribution or outdated promotion models by using the threat of legal action in an attempt to monopolise access to their products”.

The actions of local distributors amount to sound and fury, with little in the way of restriction or prohibition. So unless the laws are turned back towards protectionism, it's time for Australian distributors and technology retailers to face up to the new paradigm.

As Dick Smith said recently regarding the plight of his former retail chain: "If I'd still owned Dick Smith, I would have moved the whole operation to Hong Kong, still employed Australian staff and couriers, but everything would be sold by mail”.

Technology early adopter Richard Taylor purchased his new Samsung Galaxy S II LTE (4G) smartphone from overseas because Australian mobile networks often launch mobile phones several months after overseas retailers and usually force purchasers onto two-year plans rather than allowing a fair outright purchase price.

Taylor also says there is usually a limited range of handsets available and they are often retailed exclusively to customers of Telstra, Optus or Vodafone.

Companies like Apple offer a worldwide warranty that allows consumers to take the product to an Australian service centre even if it was purchased from a shop overseas. However, the devil is in the detail as parallel imports from smaller vendors such as those on eBay can be problematic for customers as there is no local representative for warranty support, power cables are often not Australian and instruction manuals can be in a language other than English.

Furthermore Australian Customs advice for internet purchases is: "if your imported goods arrive in Australia by air cargo, sea cargo or by post and their value is above $1000, in most cases, you will be required to make an Import Declaration and pay the calculated duty and taxes”. For consumer electronics this means paying 10 per cent GST.

LateralEconomics chief executive Nicholas Gruen says that consumer prices are reacting only slowly to the surging exchange rate. There are also strong retailing oligopolies in some areas – like mobile phones – which inflate their margins.

"Where there is strong brand loyalty, some brands take us for suckers,” he says.

"It amazes me that our politicians don't bell the cat on the cost of iTunes downloads of songs and movies and put some pressure on Apple to give us an even break.”

"The same Bose noise cancelling headphones cost $299 from US retailers and $495 from Australian retailers. Why? Because Bose figures our market is less competitive so they can jack up their prices,” Gruen adds.

"Far from putting public pressure on these monopolists to treat us fairly, our politicians are helping the monopolists by restricting parallel imports and various other barriers to trade.”

There is one particular retailer that Gruen is keeping a close eye on and that's JB Hi-Fi, which began selling Canon and Nikon cameras and lenses sourced from Hong Kong through its JB Hi-Fi Direct online subsidiary several months ago.

Their reasoning was textbook supply and demand, citing that: "JB Hi-Fi customers are requesting it; supply chain mechanics are now efficient enough to provide a high probability of availability and supply”.

These products are significantly cheaper than their in-store stock of Canon and Nikon products and in the event of warranty issues JB Hi-Fi arranges to send them back to Hong Kong for repair at its expense.

This may appear at first glance to be an odd move which results in part with JB Hi-Fi undercutting its own stores. However, in economic terms it makes sense that if your retail stores are losing customers to online importers, you're better off losing sales to another division of your company than to a competitor.

With commentators predicting that the Australian dollar "could soar through its previous highs and beyond” more retailers may be forced into following Dick Smith's advice and trying an experiment like JB Hi-Fi Direct to win a share of the online parallel imports market.