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White death?

Media reported that Kogan announced an expansion of their range to include white goods.  For those who remember the demise of the Brashs chain in 1998, an early warning about their looming trouble was, similarly, the addition of white goods to their range. When a retailer expands into such a low margin category, they are most likely chasing store revenue growth at the expense of net profits. This may placate the stock market, but analysts should be wary. Particularly, given that Kogan himself apparently attempted to sell 10% of his holdings.

Australian online sales

The Age commented that the Australian Bureau of Statistics (ABS) reported online sales reached $1.3 billion in April, up from $510 million at the same time last year.  It is encouraging to see that at least in some areas the ABS discovered the virtue of reporting retail figures against the previous year rather than the previous month. The dollar numbers translate to 5.4% of all sales in April 2018 going through online, up from 3.4% a year ago and 2.6% in July 2014. In comparison, last year online sales in the US totalled 7.5%, 14.5% in the UK, 5.4% in Japan, and 8.4% in Germany.

Myer’s new, old focus

According to the AFR, the new CEO of Myer stated that the company must put its customers first, “in every decision we make and every action we take”.  Sounds good, but our suggestion would be to start with the basics: making sure that someone is available to take money from customers who have found something they want to buy. We have heard repeated complaints that Myer doesn’t have enough staff on the floor and customers must search to locate someone willing to take their cash.

Misleading sales statistics

The Australian Bureau of Statistics published retail sales statistics, stating that April 2018 sales went up by 0.3% in comparison to... March 2018.  We keep stressing that such numbers are totally meaningless.  What matters was the increase in comparison to April 2017 and that was around 2.3%.  We had to figure this one out ourselves. The ABS and various media outlet seem all too comfortable with ignoring this KPI.

Amazon plays dumb to new GST rule

The Australian reported that the Australian Treasurer, Scott Morrison said that he found it hard to believe that Amazon lacked the technology skills needed to properly charge GST on goods shipped to Australia.  Nor did they lack the time needed to prepare.  Morrison personally met five times with Amazon over the last 12 months, so they cannot claim to have been surprised by the new GST rules coming into effect on 1 July.  It looks to us like Amazon is engineering a public tantrum because they don’t want to pay tax. We sympathise with the notion of a tax-free business, but taxes (and death) are inevitable; the important part is to make sure that they are applied evenly, so they don’t distort the economy.  As much as we like GST-free goods coming from overseas, the GST loophole was putting heavy stress on specialty retailers in Australia and it is good to see it (finally) fixed.

Costco’s wage decision

Various media reported Costco’s intention to increase wages for its 130,000 US staff, with a new US$14.00 per hour minimum.  This will still be less than the recently increased minimum wage in Australia. Unlike Australian retailers, Costco can afford the increase for two reasons: a generally low-cost (i.e. well run) business, and the recent corporate tax reductions in the US.  Furthermore, Costco’s decision has been driven by commercial reality rather than a ‘needs-based’ approach to the economy. With the US unemployment rate at 3.8%, employers must compete strongly to attract and retain talent. More proof that in a successful economy, workers are well protected by the demand for their services – without tons of regulations and government interference.

Australia ‘leads’ the world

The ‘Fair’ Work Commission announced that by mere virtue of being employed, 2.3 million Australians will be paid $1,263 extra each year. With the new minimum hourly rate of $18.93, Australia has the MOST expensive labour on the planet and we certainly don’t have the levels of productivity to warrant this. Retailers will be hit hard by this extra cost, which will push some of them across the threshold of viability.  Just for comparison, the hourly minimum wages in Germany are $13.40, $11.35 in Canada and $9.75 in the US. Australians should be concerned about living beyond our means – in the longer term, this never ends well.

Who said that brick & mortar retail is in trouble?

The AFR published an article about Australian retailer Mecca Brands. The business has been growing at a rate of about 45% (yes, correct, 45, not 4.5) a year between 2011 and 2016. Today it is estimated to be turning over around $500 million, within the $4 billion cosmetics market in Australia. So, when department stores complain about difficult market conditions and online competition to justify their declining sales, we just wanted to point out that Mecca operates within precisely the same market, under the same conditions. They do it exceptionally well, and that’s the difference.

Amazon tricks

The AFR commented extensively on Amazon’s decision to stop shipping to Australia. Apparently, social media has been fuming with complaints about Amazon and the Australian Government, for finally imposing GST on all imports. It looks to us like Amazon is trying to manipulate the Australian public, to force the Australian government to back down. We hope that the public will see it for what it is: a cynical attempt to retain a massive competitive advantage over Australian retailers, which don’t have the option to sell goods without GST. In the medium, to longer term, Australians will be better off, as more local retailers will be able to compete and avoid bankruptcy.

Sears decline

USA Today reported that Sears Holdings in the US, which owns Sears and Target, will be closing another 60+ stores.  The company has failed to generate profit since 2010, and it closed 580 locations the year prior.  Currently, it operates around 900 stores.  We don’t necessarily share the opinion that the problems at Sears have been caused by Amazon and Walmart.  In 2010, Amazon was only a fraction of what it is today, yet Sears were still running at a loss.  Walmart has been around for many years too.

GST tantrum: to block shipping to AU

The AFR reported that Amazon will block shipping from its international websites to Australians from 1 July, when the new rules applying 10% GST to all online purchases being shipped to Australia from overseas come into effect. Previously all online purchases under $1,000 from offshore retailers were exempt from GST. While Amazon's decision will no doubt cause short-term inconvenience for Australian consumers, in the medium to long-term both shoppers and retailers down under can only benefit from Amazon's decision and the level playing field the new GST rules creates.