Harvey Norman - a belated online seller

Today we got from Gerry Harvey, the CEO of Harvey Norman, confirmation that he is a practical man....at least belatedly. He was clearly not honest enough to concede that he was wrong in his actions to campaign for a new tax, however when it comes to money, he is inherently a far more practical or pragmatic man. Clearly he has seen some impact on sales from his 'tax policy', and has climbed into the trees. There was no fanfare greeting the launch of this enterprise- a new online business. He is conspicuously silent since drawing negative press. He has done this before, its just that he could not make it work.

I guess you cannot blame him before his entire business model was about charging high margins upon the unsuspecting. I actually don't expect him to develop his market online. I think he will sell his shares and retire. The online presence is probably just a smoke screen because really it does not fit with his existing business model. Its not a question of being too late, its a question of people questioning the integrity of a business which charges so much more for online or store-bought produce (knowing the online price).

Anyway, his arrogance will only cost him millions....not enough carnage for him to face his demons.

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Harvey Norman profits hit by tax campaign

Clearly the tax campaign has hurt Harvey Norman, as its half-year sales plummeted 17%. The company has however blamed a cool summer and reduced profit margins. That is a nice way of putting it. Cool summer equates to low sales. An interesting rationalisation. I wonder how they explain the fact that Dick Smith sales improved 6.5% in the same period.

I am a big advocate of online sales, but its interesting just how competitive traditional retailers can be. I found a reasonably priced phone at Dick Smith and purchased it, paying $15 more than I would online for the product 'now'. This is a company which is more atune to the market. I must however say that their sales policy disclosure is poor, and their customer service not up to the standard of their rhetoric. For that reason, one is inclined to not merely by from local online resellers, but to indeed go offshore. These companies have to realise that they need to offer value that we can't get offshore.

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Dick Smith - problems buying a smart phone

Last week I bought a Sony-Ericsson Xperia Mini-Pro Smartphone from the Queenstown store of Dick Smith NZ. I tend to buy such products online, however there were two compelling reasons for buying in-store on this occasion:

1. The $399 price was merely a $20-30 mark-up from a lot of the NZ online stores

2. I was given the assurance from two staff that I would be able to replace the unit with a higher value product if I was unsatisfied. They did say that I could not simply return the product for a refund; however this would later be a wide digression from the rules as the store manager would ultimately explain.

Anyway, having talked to two sales people at the same store, I came away with the knowledge that I could get satisfaction from this phone, or that I could get a Nokia phone. As it turned out, I failed to check whether they had the type of Nokia phone I desired. Anyway, no problem, they have other types of Nokia phone.

Having bought the phone on the 2nd Feb 2011, I returned the product for an exchange on the 5th Feb. On this occasion I spoke to the manager/perhaps franchise owner. I was inquiring about whether they can order the Nokia E63 phone. The reason for returning the phone was:

1. To avail of the opportunity to exchange for the Nokia E63 phone within the two weeks required by the sales staff. The Nokia E63 is cheaper, so I would have to buy other products.

2. More importantly, the Sony-Ericsson phone is a teaser with great specs, but poor performance. Store staff had indicated that this was a popular phone.

The problem with the Sony-Ericsson Xperia Mini-Pro are the following:

1. Under-powered battery - the size of the Xperia battery is half the physical size of the battery in the Nokia E61i I currently own. The problem being that I am only getting 2 days of use rather than the 4 days with the Nokia E61i when I first bought it. I would expect that improved energy efficiency offsets the higher power load in the newer models.

2. Poor product balance - I work in different settings, i.e. at cafes, standing up, lying down. I found the Sony-Ericsson Xperia fine for typing when you stand up, though not as good as I thought, but it was bad lying down. The balance was poor for typing. The weight balance is far better for QWERTY based keyboards which are integrated into the phone. I also do not like the unsturdiness and looseness of the slide-out models. I have shied away from them before.

3. Android software - The software on the Android was also bad. Although I would be able to load free or cheap software after acquisition, this is not tempting when you consider the prospect that I might want to return this product to the manufacturer/retailer.

The reason why these were issues was because by asking for the terms I understood I had, I thought I was protecting my downside. My concern was that the battery was not good. Their were such proclamations on the internet; however the issue was not ambiguous because:

1. I could see no evidence of how many hours of battery life

2. There were customers (who clearly had not had a Nokia E61 or E63) who were satisfied with the battery life, and who

There were two problems with the service I received from Dick Smith - for me.

1. Product Disclosure - They have slimmed the specs to describe the phone. In the case of the Xperia mini-Pro, there was utterly no 'objective' or 'written' specs at all, so I was relying upon online information. I find this completely inadequate.

2. Sales terms Disclosure - The manager pointed out to me their sales terms 'in writing', displayed in bold about 1 metre above the head of the short staff who was serving me. I did not see it, it was not in my field of view. They displayed it on the receipt as well; which I did not look at, after all, I was buying a phone, not a receipt. Even the sign the manager highlighted. After I read it, it did not even state what he implied. So there is a lack of clarity with respect to the terms of sale. The staff should present the customer with a written outline of the store sales policy, and get them to sign it. That is proper disclosure.

The attitude of the store owner/manager was far more 'tighter' than the sales staff. Why? There is a disparity in policy direction as I asked two staff. It is probable that a lot of customers are asking the same question. The staff should just refer customers to company policy as a matter of routine. The response I received from the store manager was less than satisfactory. It went something like this: "Dick Smith is an international company and we don't make exceptions for customers". This sounded like a thinly veiled threat....'if you mess with the big guys. I highlighted that they were beholden to the law. No response. Might I gauge from this remark that customers in Australia are also treated the same way?

There is however a greater problem for stores like Dick Smith and Harvey Norman - where is their value proposition? They now offer less value than ever when they start adopting the measures they are adopting. The only reasons that I can see for buying in-store is:

1. Store credit - this is not a benefit for me - I'm not poor and I would not use store credit anyway, even if it was 2-years interest free....not just because a premium is attached to the purchase price.

2. Customer service - this is no longer there. I guess one has to empathise with sales staff. It is hard to provide customers with accurate info with so many products. This is reason for stores to add-value, not to spurn customers I would argue.

3. Immediate delivery - This is often a buying point but its not always compelling, particularly in this case since the product was not in stock when I inquired. I had to wait several days.

One of the problems for these stores is inadequate training. This is a global phenomenon. I buy products around the world and it is a rare case indeed where sales staff know what they are talking about. In this case, I did not trust sales staff to tell me the product specs. I looked online, and I protected myself 'on what I was told the store sales policy was', which ultimately proved to be false. I was not going to trust the manufacturer or the retailer with such questions. The problem I have is that the manufacturers have failed to come up with an objective test for product battery life. i.e. If you were to perform a certain number of hours performing a certain task, i.e. text typing, calling, playing music, then you would have an objective measure of your product's battery life. i.e. If you thought you use the phone 15% for music, 50% for texting, etc, then you could could measure the life of the battery. It would be good to have an idea of life over time as well, and better information on how to use batteries.

If you are looking for a smart phone, you can read my blog post on the issue here. In the meantime, I will escalate my complaint with dick Smith to a formal complaint.

When I listen to the person in-store and I look at the complaints website, I really get a different response. Is it just rhetoric, or does the company have a policy of culling bad news at head office, if you escalate the issue to them. Visiting the complaints site was indeed a 'different experience'.

"At Dick Smith you'll get the right advice by Talking to Our TechXperts".

I have a great deal of difficulty believing that of any electronics chain, though in fairness I did not rely on their 'technical skills' on this occasion. I go to paper source or manufacturer specs when I want technical info, as well as store feedback.

"We offer the best quality brands delivering the best solution to your needs every time".

Actually this was not my experience. They were understocked in the better Nokia brands like the E63, N71, N72. You have to go online for those.

"Satisfaction guaranteed"

Hard to believe that rhetorical claim is possible, given that customers can be unreasonable in their demands. Then there is the following:

If you find a lower price within 14 days of your purchase date, we will refund the difference*. And... if you change your mind within the same 14 days we will exchange or refund your purchase**.

All those asterisks is a bit disconcerting. You do have to read the fine print. Their price clarification is reasonable:

"Competitor must have a retail store. Price comparisons must include all delivery charges, and bonus offers. Product must be identical (e.g. same brand?model?colour). Confirmation of competitor's price is required. Excludes exclusive models. Competitor must be in stock (not available for back orders). No bulk purchases, retail quantities only. Excludes competitor's clearance lines, limited stock offers or Member ? Club ? Internet prices".

These terms are reasonable. The 'change of mind' policy however is not satisfactory:

** Change of Mind Policy: To be entitled, you must provide proof of purchase and the item must be in unmarked, original condition including all packaging and supplied components. Change of mind returns do not apply to Gift Cards, Recharge Cards and Vouchers, Music Downloads, Photo Processing and Imaging Products, Pre-Paid Mobile Phones, Vendor Direct goods such as Fitness Equipment, Made?Built to Order Products, Unsealed:- Computer Games, Music CDs, DVDs, Computer Software, Printer Cartridges".

This is not the same as what I was told in-store. I was told the product had to be sealed. This does not stipulate as such. The policy is also vague because the policy does not apply to certain products. This leaves open - what in fact does apply to phones? How does this relate to the customer 'satisfaction guaranteed'. Maybe it was never about the customer. Maybe its a play on words 'Dick Smith satisfaction guaranteed'.

I really think Dick Smith is really undermining its service here when it could have a better managed process. It needs to establish a process for each major product line describing the full specs of the product. Have the customer read in-store those specs so they understand, and to sign off on those product specs, sales policy, as well as directly dealing with customer issues. They can say 'But the Xperia is our best selling item, and we never get any complaints about them'. Well, deal with mine! Maybe you are systematically snubbing customers. Maybe those customers have subjective standards because they have never had a Nokia E61i or E63. The Dick Smith product disclosure was also lacking. Why was their policy pertinent to phones not presented at the phones display cabinet. Why? Because customers would see it?

There seems to be a company policy of keeping customers in the dark. Phones are a technical item, and company policy seems to be to evade that fact rather than to manage the process. One of my best quotes....I am sure I will be remembered for centuries coming:

'Risk is managed, not avoided'.

Clearly at Dick Smith the 'guarantees' are shallow rhetoric because I took steps to protect myself and the sales process has maligned me. Thereafter the responsibility is theirs because they designed the sales process; and they have the relationship with the manufacturer. That is why they are the custodian of the customer's interests to the extent that they are. If they don't want a paper trail - fine! - Design an online solution for managing the process. Really! Its not rocket science. These retail chains have really fumbled on their business strategy. The problem I suggest was that Gerry Harvey is not very smart and Dick Smith lost direction when it was bought out by Woolworths. Dick Smith is a pretty smart guy. I think Woolworths has failed with this division....no doubt because its a small division and they failed to differentiate it from food, which is not so easily sold online.

I will keep you posted on how this issue unfolds. I will go back to the store to take photos of the camera display, the sales 'disclosure' high above the sales staff, and then escalate the complaint to head office.

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Retail associations as bad as Gerry Harvey

The Australian Retailers Association and Australian Sporting Goods Association are 'self-righteously' claiming that Harvey Norman and Myer were silly to proceed with their GST campaign. They label it as a 'public relations nightmare'. The problem is not just these two companies, its the pragmatism or 'moral relativism' of the industry associations as well. They are no better. This is not a 'perceptions' problem. There is no good way to increase taxes. The disaster for these two companies was not standing for an idea or principle; but rather for a 'self-serving agenda' which entailed extortion or the use of force through government...be it at the interests of consumers or anyone. Doing it during Xmas or recession is a side issue. That just elevates the level of hostility.

There is a broader problem here of business being 'anti-principled', concrete-bound idiots only interested in making money, at the expense of 'minds'. They repress such concerns because of the political context in which they minimalise the importance of ideas by pursuing concrete 'materialistic' agendas. The misdirection of these complaints unfortunately leads us to a socialistic backlash; as if we need another collectivist revolution. That is the paradox...socialism undermines people's capacity to think, and we then get a reactionary political movement towards more government because people are injured by collectivist government. The so-called self-perpetuating myth.

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Retailers penalised by government

There is another reason that retailers get a bad deal. The rents are high in Australia because the govt keeps property prices high by constraining the supply of property. We are one of the least densely populated countries in the world, yet councils/state govts with no income taxing powers extort wealth through restricting the subdivision of land. Apparently Australian rental rates are 2nd to New York. This of course is reason enough not to have a retail presence in Australia, or at least to make online sales the basis of your business.

This is not to suggest that the government should widen the GST tax, but rather that they ought to stop taxation and remove silly regulations, i.e. Greater accountability. The implication is that all retailers are penalised by the state.

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Gerry Harvey - fairness or extortion

The Brisbane Courier Mail writes:

Assistant Treasurer Bill Shorten argues...big retailers displayed a "streak of defeatist protectionism".

This is unfair. Protection is characterised by the existence of tariff barriers, subsidies, import quotas and the like. This is not what the retail coalition is campaigning for.

They simply want equal taxation treatment of online sales, not a system that is tipped in favour of overseas operators. They don't want special treatment for themselves. They want it to be removed from offshore competitors.

The problem with this argument is that you don't achieve fairness by loading taxes on people. You achieve fairness by taking them off yourself. Gerry Harvey cared little about the impact upon others, his interest was 'equal slavery' to our government, as opposed to differentiated slavery. The argument is not solely 'equality' but a question of freedom. He was insensitive to others political and financial interests...people for whom a tax imposition means a great deal more to than it does to him. It did not help that he raised the debate during a recession and at Christmas. For this reason....I call him an extortionist...because he is effectively sanctioning increases on taxation for Australian consumers, when he should be attacking the stupidity of the taxation system and canvassing a 'user pays' system.

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Market power in Australian retailing

This article offers one of the better analyse of the Australian online retail trade. It makes the point that Harvey Norman need not be exhibiting the pricing power. It may be wholesalers or manufacturers. The question is which? We raised this point in one of our blogs as well. I suspect the answer is that its certain manufacturers like Sony and Toshiba which have significant brand power. I think there is a tendency for retailers in Australia to mark-up those cheaper products to the Sony prices to make them appear more 'reasonably' priced. i.e. Most price-sensitive people will buy the lower-priced import, and retailers will mark-up their prices, knowing that that is where most customers will fall. It only works as long as people don't go online. i.e. So long as customers are ignorant. i.e. Scared of online transactions. Clearly the fear factor is disappearing and Gerry Harvey is starting to see it in store sales.

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Labor government reputes GST extension to offshore sales

Julia Gillard, Australia's PM, has defended the right of consumers to a bargain. The question is why. She says she will wait for the outcome of the Productivity Commission report into the matter. I suspect the commission will support the lowering of the threshold from $1000 to $500; after all she has argued that collecting the tax would be inefficient.

From Gillard we are getting:

1. Pragmatism - in the form that abuse of rights is ok if its commercially viable

2. Consumer friendly - She loves to see consumers get savings but she is not a fan of increasing disposable income by reducing tax. i.e. She has other ways to skin a cat. i.e. One's which target big business.

We are not against Gerry Harvey's desire to reduce tax; we reject his efforts to shift it to the customer; or to lobby for tax imposts elsewhere. He might argue that its the only practical position he can take; but then we have a different conception of practicality which does not involve imposing taxes on others.

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Chinese critical of Harvey Norman tax plan

Chinese manufacturers might also be a little bit annoyed by the latest efforts by Gerry Harvey and other retailers to undermine online sales with the extension of the GST to foreign sales. Their arguments are less persuasive since there is no reason for thinking that the tax impacts on them unreasonably. i.e. They don't pay the tax. They could however argue that the tax impacts on their sales and jobs. i.e. If we purchase more online imports, we might but less from Harvey Norman which is probably inclined to stock well-known brands.

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Evidence Harvey Norman is a poor online marketer

Why is Harvey Norman failing in the online commerce arena. This company makes some good arguments for why they are failing in online commerce, and no doubt is making the argument for marketing reasons. The problem is that its just marketing. Harvey Norman has no intent in competing in a retail war with online sellers. It won't because it will alienate its traditional business model because it will show to their clients that there is really no value proposition for most people to buy in-store. Why? The reason is that unless you get store assistance or easy credit, or need the product now, there is no reason to buy at a store.

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Retailers benefited from easy credit

This is an interesting perspective in the Courier Mail which did not occur to me. The fact that Australians who can't save a few dollars might be inclined to buy products on credit. I have never been taken in my these retail store gimmicks because I know they are almost always inducements to buy things you don't need, at premiums which do not justify the purchase, and that you should always pay cash. The only thing you buy on credit is appreciating assets (i.e. sustainable growth for those inclined to buy in credit bubbles).

This however is not a criticism of Gerry Harvey, but rather the unthinking Australian for taking up such terms.

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Some fairness please for Gerry Harvey

There are different reasons why Gerry Harvey is being attacked, so after reviewing some of the Twitter criticism, I would like to give him some level of defense, because not all of it is legitimate. There are those who argue:

1. Against globalisation - For some reason they see Gerry Harvey as a symbol of globalisation. This is nonsensical argument, even though you can argue that he imports a lot of product; so does everyone, and was a consumer driven phenomenon, in the same way that cheaper online shopping is hurting him. He is at least not as unthinking, uneducated as the socialists asserting this proposition. Further proof that public education does not help, but in fact creates socialism.

2. Crocodile tears from Harvey - There are those who argue that the political rights and concerns of Gerry Harvey are somehow less important because he has $700million in wealth. I personally repudiate those who think wealth is inherently an indictment of immorality, public derision or that Harvey Norman is not worthy of moral consideration. The reality is that he is entitled to rights, but he ought to be campaigning for a system which protects all people, not merely himself, i.e. Principles, not exemptions under statutory law. On that note, Gerry Harvey has my empathy. His life ought to matter to principled people, moreover because he is being attacked by self-loathing collectivists who will attack any symbol of success because they cannot attain it. Harvey does have an important role to play. I think moreover because his business interests are lagging. I think its time he retired...probably should have ten years ago.

Perhaps you have also to empathise with Gerry Harvey because despite his ignorance he is by at least a financial measure a successful person. Money isn't everything, but he cannot be accused of being a parasite, he has probably followed the rules of the country (even if laws are often immoral), and by some measure he is a role model, i.e. Good work ethic.

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Is Gerry Harvey a man of principle?

Well, I guess you could argue that everybody is a 'man of principle'. For instance, we might well argue that a psychotic is a 'man of delusion'. Gerry Harvey is upholding the principle of fairness. His position is that he is unfairly being penalised by the tax system which offers buyers of imported products a concession at his expense. The problem with his thinking is:

1. Concession - They are not getting a concession, it is just that with respect to this particular tax, you are being unfairly treated, not not simply because you are paying (or collecting) more tax, but because you are being extorted; never mind that they are not. The fact that a person is enslaved by a tax system is no justification for enslaving others.

2. Arbitrary democracy - Gerry Harvey is using the political process to achieve his self-serving ends. This would not be a problem in a socio-political system where reason was the standard of value; but its not. Numbers and 'access' are the basis upon which the political parties draw up arbitrary laws to appeal to their 'alligned interests'.

This is why Gerry Harvey ought to have attacked the illegitimacy of taxation and the democratic system. If I was him I think I would have retired and sold his shares before doing that, because some of his political opponents would have polarised his opponents and lobbied through his commercial interests. The reality is that Gerry Harvey ought not to be the face of any political campaign; he simply is not intellectual enough.

I therefore don't doubt that Gerry Harvey is a principled man; the problem is its a principle held out of context. The pertinent context is the arbitrary democratic/statutory legal framework which he is effectively endorsing.

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What makes Gerry Harvey an extortionist?

Why is Gerry Harvey an extortionist? An extortionist is a person who places you in a situation where you are compelled to act against you will. In fairness to Gerry Harvey, it is not hard to be an extortionist in the modern world. There is a good reason for that - politics has created a double standard under two forms of law:

1. Common law says that it is illegal for people to extort wealth from others

2. Statutory law enacted by government says they have the power to extort, and thus any retailer like Gerry Harvey who has the capacity to lobby or influence them, can thus be considered an extortionist.

For Gerry Harvey to engage in such influence is not unusual. I would say anyone who votes is an extortionist, so that would be anywhere form 50-88% of any population. Everyone of course justifies it, by arguing that its legal, that its practical, that democracy preserves stability, etc. Its all nonsense, but it keeps those who want to retain power in power. Gerry Harvey fills he ought to have the right to such influence, and legally he does. The problem is that:

1. He is taking action with threatens to cause financial injury to others

2. He has more influence than most people by virtue of his wealth.

The problem is that most people simply do not get this. Most people cannot think because they have an ambivalent moral framework. Such people when reproached sink into their dogged self-righteousness, their evasive or cynical scepticism. They simply don't want to deal with what they cannot cope with. In the case of Gerry Harvey; he has a great deal of power to do something, but he did the wrong thing. He took a 'self-serving' position to protect his sales, even if he might rationalise that he is simply trying to protect jobs and shareholders. The reality is - it was not a very 'evolved' principled position. This is no question a symptom of his ignorance or lack of conceptual grasp of reality. I think for the last 30-40 years he has always thought of himself as a practical man. Ideas are just delusions of righteousness. This week he learned how wrong he is. Today...the "retail emperor" has no clothes.

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The latest news on Gerry Harvey's tax plan

My latest thoughts on Gerry Harvey's tax plan to hide behind the skirts of small retailers. Where might I ask will they be hiding.

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NZ retailers extorters like Australians

The same issues plaguing retailers in Australia are now being debated in New Zealand. NZ likes to copy Australia's follies. Any new issues for NZ? According to NZ Herald, their concerns are similar:

1. They argue that they are worried that importers will use products for commercial purposes. This was once and issue callled 'parallel importing', however the lack of warranty tends to discourage that, except when local companies are charging excessive mark-ups.

2. The same argument is made that people can enter a store, try it on, and then buy an imported product. True enough, I bulked at the idea recently of paying $NZ170 (PHP6500) for shoes available in the Philippines from an up-market department store for P3500-4000, and that is before I even consider sales. I bought Hush Puppies on sale for P2000 ($US40 or $NZ55). In this case, I go to the Philippines, or have someone buy them for me, but the issue is the same. Local business 'mark-up' product so much that people are compelled to go online.

The NZ retailers, which do include some of the same companies, want all imports charged GST, as all purchased in NZ less than $500 are exempt from GST, except gifts. The appeal of the change to the NZ government is that it would apparently raise an extra $500 million a year in GST revenue.

The moral of this story is that Western people ought not be selling low-margin products which are best sold by foreigners. Why deny developing countries jobs when we could be doing more valuable work. This is particularly true for NZ, where the country's average incomes are 30% lower than Australia's. This is an opportunity for some 325,000 New Zealanders to think about entering a sustainable career. Clearly those with no imminent need for work ought to be leaving the industry now, or otherwise reskilling themselves for the inevitable loss of work, or fall in wages. The other reason why NZ is losing jobs is because of wage pricing inflexibility. Minimum wage levels need to be discarded...at least in favour of the Japanese model of offering remuneration as bonuses for excess profits.

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Retailers - A GST exemption is the least of their worries

You might wonder why the retailers are worried about the spectre of a GST exemption for offshore sourced products. It ought to be the least of their worries. One reader makes a good point:

A GST mark-up won't affect online trade much at all. Consumers purchasing from overseas are already bearing much higher costs and risks. For example:

- The risk of being defrauded in a different legal jurisdiction.

- The risk of the goods having to be returned at high shipping costs

- The cost of shipping Internationally

- The often long length of time taken to receive goods

- The often inability to exchange for another item

Consumers are prepared to suffer all of the above over the convenience of just hopping into a local store.

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

The proportion of sales which are online

It is interesting to understand exactly why the retailers are so concerned about declining sales. They are not competitive because they are over-staffed. The reality is 'bloated large companies' cannot compete with small companies where professionals work long hours, more effectively, and are able to grab all the business from these retailers.

Some 80% of all online sales in Australia are made with AUSTRALIAN OUTLETS (ie charging GST).

The motive of the retailers appears to be that they will be forced like Qantas to adopt a low-cost operating model. The problem is that they have been very slow to do that. They know they cannot do that easily and retail profit margins. How can they justify their huge showrooms? They need to really examine their business model. The solution lies in differentiating between store sales and online sales. They don't want to do that because it will entail thinner margins. The reality is that those foreign companies are not even their real threat. I guess they might argue that those stores will be a threat if they have to take over an online business, only to realise that the rules have changed.

If that is their concern, then let them complain about arbitrary government (statutory) law, which perverts justice, rather than protecting it.

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Retail workers should seek other vocations

The people working in the retail trade for Harvey Norman and others should look for another job before they lose it. They ought to recognise the reality, that their bosses are ineffective, so they are sailing on a sinking ship. After all, they need propping up by government. Get out before the foreigners take you over! This is my message to workers at these enterprises, because you have no one else to blame but yourselves. You need to plan your career choice, not blindly hope there will be a job for you in the future because there was one yesterday. Here is a quote by one of them from the SMH article:

"I work for Myer and i hope that all of you saying you wont buy from us lose your jobs! We have a family to feed too; we need the money that comes from your custom".

The problem with the worker who made this response is that they appear to be saying that extortion is ok if it keeps them in employment. Sorry, but unthinking people like this do not deserve protection. They are the reason why Australia sux as a place to live. Parasitism and extortion. If they only had the education to know how their government had sabotaged the economy. They are themselves the result of the public and private (religious) education system.

One commentator made the point:

"I love the way after 40+ negative reactions to these greedy retailers were posted suddenly we had two or three supposed Myer employees posting almost identical messages about how we are all threatening their jobs. Sure you work for Myer - you work for their PR Department and are in damage control. These companies really think we are mugs".

That be as it may there is no doubting that there will be mothers with an unsustainable number of kids who will be hurt by unemployment. We however cannot spare people from the responsibility of thinking...sorry she is getting the message after 3 kids.

Another respondent says:

"I happen to know that Telstra is NOT offshoring many of its jobs, infact it is trying to bring back most of them! (there will still be some that are not within this country, but we recently build a brand new help center in Melbourne that will take alot of calls".

True enough, Telstra tried offshoring jobs but it managed the process so badly it lost jobs. The problem was it did not understand the cultural sensitivity of having Indians selling telephone plans to elderly Australians who are hard of hearing. Nor did it understand the sensitivity of customer information. Yep, another win for government-employment culture.

This is not incidentally the sale issue. In this case, people are happy with the foreign service, and the local retailers are very scared, because they have not positioned themselves. Maybe they realise that they need to buy an online seller and are trying to extort a good deal by showing that they are mates with the government.

The blind salesman leading the blind sales woman

Well Harvey Norman does have some supporters based on feedback on the SMH website:

"I have 3 children, am a single mother and work for Myer - how am i supposed to feed my family if i lose my job???? Keep australian money in australia!"

The problem is that she suffers from the same education standards as Harvey. To answer her question:

1. Stop having children

2. Retrain so you can enter a more lucrative job than sales - a disappearing career vocation

3. There is no such thing as 'Australian money', and its certainly not yours since you will never recoup all the welfare you are getting for your 3 children.

4. Stop supporting fascist governments which undermine your ability to retain a job by adopting minimum wages and boom-bust government spending policies.

I might add that the concept of 'keeping money in Australia' is not a new concept. Its name in the old days was mercantilism. i.e. It is nothing more than a collectivist form of favouritism. What we need to do is work for what we get, and recognise the 'real' value offered by Chinese and other foreign businesses that offer us cheap, quality product. The problem is Australians who don't support their own lives, and politicians who sabotage their development by comforting them, i.e. Sparing them from development opportunities.

The values of an extortionist

Gerry Harvey, the founder & CEO of Harvey Norman, is supporting government policy to adopt extortion in the form of taxes upon online commerce. What do we need to know about a businessman who lobbies government for tax increases. Well, there are a number of things we should know about him:

1. He lacks an education - in fact according to his profile on Wikipedia, he did not like university. What might we garner from that? I suggest that 'he is a man of action', not a man who would celebrate abstract concepts like justice. He is a practical man, who obviously courts favours from governments. Governments are 'practical' people as well, they love such sympathises because the government can argue that they have the support of business, just as the government did with the Resource Rent Tax.

2. He thinks life is about doing what you don't like - I guess we might garner from that that he thinks its great for people to suck it up and serve government. The 'good of the society' and all that. Classical liberal nonsense.

We must of course celebrate success in any person. But this is a man who has accumulated wealth and starved his mind of knowledge...except it seems that knowledge which makes money. I love capitalism...so much that I would prefer to keep extortion and coercion from it. But Harvey wants to invite government into the picture to protect his profits. Clearly this old fashion man is not keen to adopt online commerce, and is resentful now because his strategy has not worked. Just look at his website - no wonder he can't make money from online sales. Where is the product?

Retailers supporting government coercion

The most worrisome aspect of the retailers lobbying is that business has become the 'foot soldier' of government in campaigning for taxes. This is reminiscent of that era before World War II. We are told how certain business sought favours from government, but the reality is that these governments merely seek concessions because of their anti-intellectual, short range thinking. We saw this among the mining companies as well. One need only look at the way the mining industry handled the Resource Rent Tax. They did improve after a period.

This writer on the SMH website shows the level of consumer cynicism against retailers:

"We should just fine anyone buying overseas - make it illegal and then we people working at retail stores can keep our jobs!"

People just don't expect business to act in support of unethical government policy.

Retailers double-standard is apparent

Retailers who complain that they are protecting local jobs are hypocrites because they are selling out jobs themselves by buying foreign products. The reality is that there is nothing wrong with them buying overseas, and there is nothing wrong with consumers buying overseas. The policy ought to be the same for retailers and consumers. That is the basis of competition.

Australian retailers offer poor product range

One of the big problems I have with Australian retailers is the poor range of product available. Consider items like business shirts. It is hard to get a decent range of patterns in Australia. If you go to Moderntailor.com, you can order from a suite of over 1000 patterns, as well as being able to chose the cuff styling, etc. There was a time when you had to fear overseas stores, but today, product reviews mean you can trust these Chinese entrepreneurs, many of them now Australian, US or Taiwanese citizens; not some dubious business person who you will never track down in China.

In fairness to Australian retailers, they do have to pay extortionately high rates for their premises, whether they are buying or renting. This however is not justification for lobbying to tax Australians. We, the voter, does not get a meaningful choice. These business people get to have lunch and dine with the PM, and they have access to the media which we will never have. If they want to get some market loyalty, this is not the way to go about it.

The problem of high rent/property prices is also another extortion racket run by government. Have you ever wondered why Australian property prices are so high, even though we are among the least populated nations in the world. The Australia government extorts wealth from us by restricting the release of land through zoning policy. This state extortion allows them to raise taxes by increasing the value of land, i.e. The absolute tax rate. It also makes their transport, infrastructure costs less onerous, which would be a good thing if the policy were intended to benefit taxpayers, but its more likely for the sake of some dirty kickback paid into a Swiss bank account. I don't know how to open one of those....ask the former Senator Graham Richardson. I think he has a huge block of land in the Southern Highlands of Bowral...or did he turn it into a golf course and medium rise apartments?

Retailers protecting profit margins

The feedback from consumers on the SMH website in response to the retailers tax campaign say it all. One complainant writes:

"These retailers are a disgrace. I particularly refer to booksellers. A quick tale; I received a $100 borders (and/or Angus and Robertson) voucher for Xmas. I compared what I could buy from borders.com.au to what I could buy from borders.com, it's American cousin. The answer? Half as much as from the American site. The problem isn't not paying tax. It's paying the "We're Australian so pay twice as much" tax. For the record, I won't be shopping at a retail store if I can avoid it in any way".

True enough. These companies are merely trying to protect their profit margins. Consider the difference here. Borders Books offers the paperback copy of 'Blaze of Glory" by Michael Pryor for:

1. $USD9.99 in the USA - see website

2. $USD17.50 in Australia - see website (I have adjusted for the exchange rate - near parity)

Why do Australian customers have to pay a premium. Are we to believe that shipping is the reason? I hardly think it costs that much to ship around the world. I would add just $1 for a book shipped in bulk. The cost of an eBook I suggest would also betray their campaign. I could not find any eBooks for sales on the Australian website to compare.

The problem with their argument is that - if they were at a competitive disadvantage they would recoup their losses with a 10% premium, or they would suffer a 10% lower profit margin. The fact that they are charging a 50-70% premium over foreign product, as Borders is, suggests that the foreign websites are offering inadequate competition.

The reality is that an Australian would not go to an offshore business in order to get a 10% difference. Let's remember that the Australian business is able to import the item in bulk, so gaining a bulk discount, whilst the foreign company is handling a single sales order.

I really think this campaign being launched by Australian retailers will backfire, and have the exact opposite affect. I suspect that they will do more in a week of campaigning to damage their brand image that any tax could do in a year of Sundays.

Boycott retailers who are tax extorters

Consumers should boycott the following companies for attempting to raise taxes upon consumers in order to protect their profits. They offer no real benefit, so they are attempting to shore up sales by lobbying the government to raise taxes, knowing that a tax cut is unlikely.

These are the companies to boycott - Myer, David Jones, Harvey Norman, Target, House, Borders, Angus & Robertson. You can boycott these companies in New Zealand and the USA as well, if they have a presence.

The reality is that the business model of these companies is weak. They are trying to extort instead of recognising that their profit margins are about to get thin. They ought to simply acknowledge the market trend...that their stores will be closing....that we no longer need to buy from local stores....in fact paper & hardcopy books will eventually disappear.

Technology aids internet sales

If you listen to the retailers association, you could be forgiven for thinking the reason why people are not buying in their stores is 'taxation'. This is utter nonsense, because the most compelling reason for buying online is that:

1. People don't need customer service. These retailers place sales staff in their stores who know nothing about the product, they have a conflict of interest, they are disinterested or under/over-staffed, they are not worth their pay. So why pay a premium for the product.

2. People get better information online. The customer wanting to buy online can visit a number of product reviews, they can purchase on credit cards, often without a credit card payment fee of 3%, they get a wider product range, often for products not available in Australia already, and they don'y pay a premium for new products.

That is not to say that retailers in Australia do not offer advantages. Let us consider their selling points:

1. They are able to offer online products at lower prices because they can buy in bulk.

2. They can offer store credit

3. They can offer in-store product, when many online retailers only offer drop-shipment.

4. They offer an easier sales experience for people who are not internet savvy.

5. They can package a sale, offer after-sales support, etc.

The reality is that most of the competition against the retailers comes from companies which are based in Australia. Most people don't want to buy from companies offshore....they want to know they can recover their money locally, and they want to be assured of product warranty. For this reason, I think a lot of concern is over-rated. The reality however is that Chinese manufacturers are becoming better at service....and they are starting to realise that store reviews will decimate their sales, i.e. A single complaint can kill your sales. That doesn't happen with retailing.

I can see the day when a lot of sordid competition results in retailers or even online competitors engaging in defamatory attacks upon other businesses by diminishing their reputation with false accusations.

Falling Australian retail sales

The other factor raising Australian retailers angst is the prospect of weaker Australian sales, as well as the prospect of more internet-savvy buyers looking for bargains online. According to the SMH, retail sales data for October 2010 dropped 1.1 per cent, when the experts predicted a 0.4 per cent increase. This is more likely reflecting weaker confidence....after all there is still a lot of problems around. The stock market at that time was weaker.

The reality is that just 3% of retail sales are from online sales, with foreign websites probably accounting for 1.5% of sales. The issue is not really whether that is significant or not, or whether retail is 'vulnerable', but whether industry sectors ought to be protected. The answer is no. People ought to pay the price of their bad decisions. As we have indicated, retailers have made large profits over the last decade because they supported the government policy of promoting consumer spending...and now they want governments to subsidise spending...when consumers want to save by getting value for money. If they want sustainable sales, they ought to lobby for government to adopt sustainable policy, and not to excessively spruik home sales/prices. You cannot have your cake and eat it too.

Retail sales will eventually recover....retailers will need however to build an online presence, and foremost an online strategy. They are well-behind in those stakes.

Counter-psychology of retailing

I find the interesting aspect of the retailers attempts to seek some government protection being the implications of their efforts. Are they not saying in effect 'they cannot compete with online foreign websites'. That to me is like a 'red flag' saying we cannot compete with online businesses, so we need help. If nothing else, I would think that is just going to impel many Australians to go out and buy a computer online, and buy all their products online.

That is what happens when you do a dummy spit. It is a complaint that causes people to do the exact opposite of what you expect.

I have long recognised that companies like Harvey Norman are a rip off; but look, now we have the retailers themselves asserting as much to the public. They are acting telling everyone, we need support, can you help us because we are not competitive.

Retailers lost competitiveness due to strong AUD

One of the compelling reasons why retailers are seeking to increase taxes on foreign websites is the strength of offshore websites. When the Australian dollar is strong, these websites, which price in USD, are more competitive. They are targeting an international customer base, and unlike the major currencies like the Euro and USD, the Australian and NZ dollars are strong. The AUD has even surpassed parity. This has two consequences:

1. Local retailers are less competitive

2. Local manufacturers are less competitive

The implication is that:

1. These industries are forced to improve to hang onto their profit margins

2. They are forced to shift parts of their businesses offshore, e.g. Importing components, or sourcing more foreign components, etc.

The reality is that local retailers are really acting VERY LATE. They ought to have expected a stronger Australian currency 20 years ago. The message was on the wall for everyone to see....they just didn't read it, and respond. I remember at least 15 years ago that newspapers were forecasting huge gains in mineral prices and exports. That equals mining boom. Why? Chinese and Indian industries would need raw materials. We all knew that internet commerce would take off. These facts were well known...why did they retailers fail to invest in online commerce? They just didn't see the market trends and now they want Australian consumers to accept a tax to protect them....no way!

It is interesting they waited until the AUD reached parity. That must have been the thin edge of the wedge...and now they are doing a dummy spit.

The misconception that retailers create jobs

The Australian National Retailers Association (ANRA) argues in its advertisements that:

"We agree with our customers that online retailing is a wonderful convenience that is here to stay....We also agree that fair competition is good for our customers and we want to be able to offer them the same Australian tax exemptions that offshore retailers enjoy".

If this is the case they should squarely ask for a tax reduction, not an increase.

There other argument is:

"These businesses don't pay our taxes, employ our people, train our young people or contribute to our economy...".

The reality is that they also don't use Australian services. Local customers do not have access to the protections of the local companies, so any attempt to levy a tax upon foreign enterprises is an attempt not to increase competition, but to diminish it. Retailers know that if the foreign enterprises were subject to the same taxes, the locals would be able to claw back more sales, or retain higher profit margins.

Some of these companies like Myer have intimated that they "could set up a Chinese distribution centre for online purchases".

I fully encourage them to do that. If that is their business model, they ought to investing in downstream supply channels....they ought to have done it 10 years ago. The reason why they repudiated it is because they did not make good commercial decisions. It ought to have been obvious where the market was going. Instead they thought they could rely on unsustainable government policy. It shows you how unthinking these executives are. They now need to resort to extortion and government favours in order to extract profits from the market...in order to add value to their company options.

The basis of this threat is that Australia will lose jobs by not engaging in this type of tax protectionism. The reality is that we are fed this dirty lie that we need to protect 'low value' retail jobs in order to generate jobs. It is a nonsense. There is no employment crisis in Australia. If there was, the reason would be minimum wages, not a tax on goods and services, or an unlevel playing field. We ought to be allowing the Chinese to be doing what they do best....which is distributing cheap goods and services. The same can be said of call centre jobs. They ought to be outsourced to the Philippines, because that is what they are good at.

The reality is that too many people are not market savvy. They ought to recognise market realities. It is particularly worrisome when retail executives cannot grasp the market realities. I think they have deluded themselves into thinking their profit model was sustainable...perhaps because the value of their land was rising, they thought their profits were real. But they were not seeing the future, where their physical 'show rooms' would become a thing of the past. They ought to be asking 'what is their future value proposition'.

The misconception is that retailers create jobs. The reality is that they create opportunity costs. They enable people to delude themselves into thinking that they have a future in retailing. They don't for the most part; least not mass retailing. The small niche boutique store has a 'market', but it will be very competitive too I suspect. The reality is that the market is compelling us to redefine ourselves; to look for higher value job opportunities. It is actually compelling us to take responsibility for offering the market something of greater value, and to be more successful than if we would otherwise rely on government protection.

"The ads warn that without action, the nation "will see a reduction in hours and shifts for casual and part-time workers, and ultimately cost Australians jobs in retail, manufacturing, logistics and related services".

This appeal to drastic implications is just one of the normal adjustments that industries make. We ought not be retailers....we are worth more than that. Retailers ought to be setting up online businesses, etc. After all, the Chinese are very poor at online marketing. They can make the products, but they do not have the social skills to market them. That is one value-add proposition. The lesson is to find more. So lost jobs is a positive. It will encourage new jobs. Ultimately, our currency is strong for a reason. Our economy is fundamentally strong, and it is also demanding that Australia require more of itself....it would be a pity to sabotage ourselves by shooting ourselves in the foot...with a new tax.

The origins of the GST tax on online commerce

We first reported on the lobbying efforts of Gerry Harvey in October 2009, when it was reported in the SMH Herald that he was lobbying the government to adopt a GST on online transactions. The lobby group is looking to apply a tax on overseas websites. It is not even clear how they would be regulated....after all, how can the Australian government apply a tax on foreign jurisdictions. So it does not even make sense. The only possibility is if all governments around the world adopted a tax on online commerce. Might we expect a similar move by other retail 'extortionists' around the world? Might we expect Walmart and European retailers to lobby for the same type of consideration.

According to the SMH, people can currently buy goods online costing less than $1000 GST-free. Retailers such as Harvey Norman would like that to be applied to all transactions. The campaign is being launched by Myer, David Jones, Harvey Norman, Target, House, Borders, Angus & Robertson who are launching full-page advertisements in newspapers. Well, I guess they can expect support from the media if they are spending on advertising. Having said that John Singleton is a good friend of Harvey Norman, and both are close to the Australia Labor government.....and they love to tax.

"The ads call on the government to either scrap the GST for locally sold goods priced at less than $1000 or apply the same impost to goods bought from foreign sites".

The problem is that they are morally indifferent to extortion or freedom. They ought to be campaigning against all taxation, and most specifically the unfairness of taxation. But they will also consider increases in tax. It is unlikely the government would scrap GST, particularly in a recession...so its an invitation for more tax.

In coming posts I will be challenging the justification for their claims. Choice Magazine's Christopher Zinn said:

“The big chains should recognise that it's their high prices, limited range and poor customer service that increasingly encourages people to use the internet".

I don't agree with that view. The reality is that retail stores do offer a greater range of products than smaller stores, so I don't accept that they are the complainants. The reality is that retailers are at a disadvantage in some respects, but they have not positioned themselves to benefit. They are really paying the price for not launching their own online commerce websites....upon which the ought not to pay tax. This is part of the problem....they would under the current system.

It has to be acknowledged that some customers are able to go to the retail stores to look at products and to select a product, and then go to the online store to purchase it. This is less common these days however because there are plenty of product review websites online. It must be added that large retailers do not offer very good service. i.e. You are kept waiting, and often the product advice is poor, even misleading. Simply, these companies are paying the price for not moving online. They were living in a dream world, and they thought they could keep their profit margins.