Comment by Patrick Avenell

“Obviously this report is a joke. How can anyone say what you just printed? Retailers have gone from making 18 per cent to now struggling to make 4-8 per cent per sale. Retailers are then pressured to deliver these goods free-of-charge so, therefore, another cost to the retailer. After 30 years of selling whitegoods, we, a retailer, are now forced out of the market due to selling under cost. Shame we were not in the car industry so we could get bailed out. Disgusting report in my opinion.” (Reader comment received yesterday from 'Ian'.)

Australian Prime Minister Julia Gillard was in the news this week harrumphing the Federal Government’s successful deal to keep GM Holden’s local manufacturing local. Fairfax newspapers estimated this deal was costing the federal and South Australian state Governments a combined $200 million in subsidies.

At the same time, one member of Gillard’s Government, Ed Husic MP, the member for Chifley in Sydney western suburbs, has led a campaign that will severely damage, and potentially destroy, the local technology retailing industry.

Three weeks ago, WOW Sight & Sound collapsed under $56 million of debt. Two years ago, Clive Peeters collapsed due to the company’s inability to trade its way back from a $20 million theft. Four years ago, Truscotts collapsed due a significant downturn in trading conditions.

Earlier this week, David Jones Limited had to halt the trading of its shares so it could announce a disastrous profit result for the first half of the 2012 Financial Year.

Earlier this year, Woolworths flagged its intention to close hundreds of Dick Smith stores and find a buyer for the rest.

In the midst of this, Mr Husic wrote to his colleague in Government, the then Parliamentary Secretary to the Treasurer and the current Assistant Treasurer, David Bradbury MP, asking him to investigate price discrepancies between Australia and overseas markets.

Mr Husic wrote that we was “concerned” that Australians were being forced to pay 40 per cent more for a Lenovo notebook PC, 76 per cent for Microsoft Office 365 and “up to 60 per cent more” for console video games.

Mr Husic failed to mention another major discrepancy between Australia and the United States: the wages being paid to employees. When suppliers set non-binding recommended retail prices (RRPs), they take into consideration the need to include sufficient margins for retailers to make a profit.

The biggest cost for any business is staff. In the United States, the federal minimum wage is $7.25 per hour (AU $6.98), while it can be as low as $2.13 per hour (AU $2.05) for employees receiving gratuities.

In Australia, the federal minimum wage for the most junior fulltime retail employee is $17.03 per hour. That’s more than double the US wage and comfortably more than any of the price discrepancies Mr Husic identified in his letter.

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To be fair to Mr Husic, he was doing his job — his constituents had contact him to complain and he was acting on those complaints. This website has received many such comments, with disgruntled Australians complaining about price gouging, particularly in reference to digital cameras, gaming consoles and computer hardware.

The prevailing mood of these comments has been that local subsidiaries are calculated in their price gouging, often presenting the Machiavellian image of sales directors stroking a Cheshire cat while working out just how brutally they can screw Australian consumers.

When I raised the issue of alleged price gouging with the GM of marketing at one of Australia’s biggest technology companies earlier this week, he expressed dismay. Local pricing, he said, is set based on local conditions, with RRPs determined based on totally separate profit and loss formulas to overseas markets.

These prices are often not high enough.

Sony Australia and Canon Australia, two companies regularly accused of price gouging, have both had to restructure recently, and understands that profitability for several major local subsidiaries is under severe threat.

For retailers, profitability is becoming an even more elusive attribute. Harvey Norman chairman Gerry Harvey told ABC TV's Lateline program earlier this week that instead of cutting the small business tax by 1 per cent, which will have no effect on profitability, the Government should remove the bureaucracy from small businesses so they can function more efficiently.

Harvey is often criticised for being a whinging billionaire, and many have expressed delight at seeing Harvey Norman struggle. These critics should remember the Harvey Norman — and David Jones, Myer, JB Hi-Fi and Dick Smith (through Woolworths) — are publicly listed companies. Their success is imperative for the success of their ‘mum and dad’ investors and the superannuation investors that make up large proportions of their ownership.

Gaming consoles, notebook PCs and the latest DSLR camera are not necessities in life. There is no comparison between these goods and bread, milk, water and electricity. Technology products are luxury items that cost millions of dollars to develop and they are priced accordingly.

If consumers are not prepared to pay the prices set, they should go without.

And instead of railing against businesses acting wholly within their rights and the law, Mr Husic should instead be working towards a $200 million subsidy to save the next retailer to hit the wall.

The writer has repeatedly contacted Mr Husic for comment.
The quotation at the start of this article has been altered to improve readability.