*contains graphic material

For his GST campaign on overseas purchases, Gerry Harvey has been on the receiving end of an unprecedented level of public criticism. I was interested to read fresh criticism from the head of the Shop Distributive and Allied Employees union, Joe de Bruyn:

Myer chief executive Bernie Brookes has suggested that up to 30,000 jobs could be cut from the Australian retail sector unless GST and import duty exemptions are removed from online purchases of less than $1000 made via foreign websites. But Mr de Bruyn, whose union has more than 230,000 members, said he was doubtful the threats would be carried out. “I don’t believe it’s going to have a significant impact on employment – they’re using these figures for dramatic effect,” he said. 

Now, I yield to no man in my criticism of Gerry Harvey, but Joe here doesn’t sound quite as across issues in his sector as he perhaps should be.

Maybe Joe should cast a sideways glance at the manufacturing sector, where the Australian reported in June last year ”The high exchange rate and competition, particularly from China, forced the loss of 30,000 jobs in manufacturing over the past three months”. Manufacturing is another sector that’s been forced into dramatic restructure over the past 10-20 years, with production shifting from countries like Australia to areas with cheaper workforces like China. Quite why de Bruyn thinks a similar restructure couldn’t take place in retail I’m not sure. But I’m sure glad I’m not in his union.

Or you could just look at overseas examples. From the Guardian, “[UK entertainment retailer] HMV Group has begun a radical downsizing programme that will see it shut almost one in 10 of its high street music stores” resulting in 1,200 job losses. This follows the closure of Zavvi and Virgin Megastore during the recession, making HMV the only pureplay entertainment chain left in the UK – and they still can’t maintain performance(!). Online shopping and downloads are being blamed. But according to Joe …

The vast majority of people still want to touch and feel and see before they buy something – people will buy a book on the internet because they don’t have to try it on, but most things people will go to a retail store to buy.

So people won’t buy clothes online? Maybe Joe hasn’t heard of online-only fashion retailer asos.com. With £320 million revenue expected this financial year asos.com is the UK’s largest independent fashion retailer. With Australia’s own fashion retailers dragging their feet, asos.com are gunning for Australian customers too. They report that international sales account for around 37% of revenue with the main markets being Australia, Germany, France, USA and Ireland. And if Joe has any lingering doubts he should just search “clothes”‘ in google.com.au. First sponsored result: “Delivery to Australia from £5″.

And people say unions aren’t moving with the times!

Australian retailers including Gerry Harvey, Myer Group and Solomon Lew are mad (as in angry). They’re planning an advertising campaign designed to pressure the government into extending the Goods and Services Tax to offshore online purchases under $1,000, thus levelling the playing field (or so they think). So essentially, a group of retailers whose business model is substantially based on sourcing cheap products from overseas are getting upset at consumers doing the same thing.

In my view, Australian retailers should spend some time looking through the Australian Communication and Media Authority recent eCommerce study: Australia in the Digital Economy: Consumer Engagement in eCommerce. It’s a clear call to action for Australian retailers to start developing a serious online strategy. That they haven’t so far is baffling to me, and no doubt to the 61% of internet users who’ve recently purchased goods and services online.

The Australian online retail marketplace is utterly, completely dire. On boxing day I went to davidjones.com.au to check their sales offering – I had vouchers and wanted a particular coffee machine. Following a link sent me to a pdf of the printed catalogue that was inserted into newspapers. With the only detail being ’15% off small electrical appliances’, I was in the dark.

Harveynorman.com.au looks good and is relatively easy to navigate, but has one glaring omission: you cannot purchase anything. You can add it to your ‘wishlist’ (something I’ve always found pretty useless on ecommerce sites – I can just bookmark a product page I’m interested in) and then pick it up instore.

Gerry Harvey isn’t stupid.  The reason Harvey Norman doesn’t offer online purchasing is due to managing the franchisees of HN’s who are obviously concerned about cannibalisation of their local retail channel. Of course there will be some channel switching with online retail, but that’s irrelevant – by not offering online sales HN’s is losing sales to online retailers (including overseas), and that’s only going to continue.

But putting aside the franchisee issue, the fact that HN cannot manage the development of an online retail channel to protect their revenues would be pretty disappointing if I was a HN shareholder. Especially seeing as furniture, electrical appliances and computing equipment is one of the biggest categories purchased online by Australians, behind only travel/accomodation and event tickets (page 13 of pdf). Here’s a few suggestions on how Harvey Norman’s can set up an online retailing operation. I have no idea if this would work within HN’s governance structure, but if it doesn’t, the point is HN need to make it work.

1. Split profits with franchisees based on share of franchisee rental. Simply take online sales profit and split it with HN stores based on their share of HN’s total rental base. The bigger the store, the greater the share of online sales profit they take, on the basis that they have the most to lose from channel switching (obviously, any investment would need to be made on the same basis).

2. Split profits with franchisees based on delivery address. One flaw in the above solution is that consumers in certain parts of the country (e.g. inner city Sydney and Melbourne) will be much more likely to purchase online than others, meaning stores in those areas will be hardest hit by channel switching. So simply by allocating profit to the franchise(s) closest to the delivery address would solve this. If I bought something online from HN, it’d be allocated as a sale by Broadway Glebe HN.

3. Allow local franchises to fulfill the order. This is my favourite solution, because it seems cleanest. HN has a fully-functioning browse-and-compare website which could have purchasing capabilities switched on virtually overnight. They also have a fully-functioning delivery service for purchases made instore. Given the bulk of the infrastructure is already there, why not simply pass on online purchase orders to the nearest franchisee and have them fulfil the order? The only major risk seems to be if volumes of online orders are too much for stores to handle – what you call a high-class problem.

Gerry Harvey, you’re welcome.