I’ve written before about some of the
ridiculous price mark-ups in Australia compared to the rest of the world. With the
internet we can easily discover pricing of products overseas, and
many of us are voting with our wallets and purchasing items from overseas
etailers.
I
think it’s fair to say that if an item cost the same in Australia and
overseas we'll buy it from an Australian retailer, but the
reality is that most products cost more in Australia than overseas. Part of it is due to the relative lack of competition. I read a
report comparing Australia retailers’ margins with their global peers
and Australian margins are consistently higher in all categories (e.g.
consumer electronics ~3% globally, ~6% Australia, department stores ~5%
globally, close to 10% in Australia).
However there are other factors at
play:
- Globally speaking, Australia is a small market. Our retailers, as
powerful as they may be here, do not have the same scale as their
overseas counterparts, so they are unlikely to get the same wholesale
pricing or delivery costs as their peers in the US or Europe.
- The Australian dollar is at an historical high making prices on overseas
websites very attractive. If the Aussie exchange rate against the US dollar drops back to its 2007
level ($0.84) or to its 2002 level ($0.54!!) the picture will be very
different.
- Retail employment and real estate costs are much higher in Australia compared to the US, and probably some European countries.
- Overseas brands are used to the high margins they earned in Australia
when us shoppers have no alternatives, and unless retailing tanks in
Australia in a big way, they’re unlikely to give up the “fat”.
With all that in mind, are we going to accept as a premium to buy from Australian retailers?
The retailers
take on the exchange rate risk – they may not pass on the savings when
their purchasing cost decreases due to a strong Aussie dollar, but by
the same token they’ll absorb (to an extent) the extra costs when the Aussie dollar
falls, and I think it should be reflected in their pricing.
And of course there are benefits from buying Oz. Buying from a brick-and-mortar store means we can test out/try on the product
in person, which will always be better than browsing the item on a
computer/smartphone screen. And instant gratification is worth something.
Even if we are purchasing from an Australian
etailer, it is often easier to return an unwanted or unsuitable item.
Lastly, buying something in Australia means the money stays in
Australia. It may be paying an SA’s wage (many of us either work in
retail or have done so in the past, e.g. during uni), supporting a small
business, or contributing in a small way to our super funds by increasing the
retailer’s profit and dividend payment.
I think I'm comfortable with up to a 30% "premium" and will probably tolerate up to 50%. The actual dollar amount difference will play a part as well. Once the difference reaches $50 I'll be more inclined to buy overseas.
How about you? What do you think is a fair "Oz premium"?
