As part of their recent submission to the Productivity Commission’s retail inquiry, Choice Magazine pointed to a pair of Nike running shoes, which cost $240 at a major Australian sports retailer, and just $134 from an online store in the States.
Australian consumers have long suspected that they are paying too much for their goods when compared with overseas and now they have the transparency of the internet to prove the point. Australian consumers believe that 35% is a fair mark-up from wholesale to retail and anything more is a rip-off. Ok, consumers are deluded because 35% is insufficient for most retail businesses, but perhaps the problem is more at the wholesaler end than the retailer end. A 35% mark-up from the wholesaler becomes at least 55% (I’m assuming a minimum 65% retail mark-up) at the retail end. We know that many importers work on a lot more than 35% so the compounding effect is very significant.
There are lots of reasons why Australian retailers need more mark-up than overseas online suppliers. They include higher rents, higher wages and better after sales service, but do consumers really want excuses?
If you have a wholesaler who is marking up too much, tell him the party is over. Your customers are becoming too smart so he’ll have to adjust or lose your business. Economics commentator Ross Gittens predicts that internet transparency means that prices around the world will fall to approximately the same level. In other words the law of supply and demand will just even things out and structures will need to change. There is a lot to think about, and a lot of adjusting to do before we eliminate the rip-off.