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A 35% Margin Is Okay Anything Above That & Retailers Are Stuffed Say Consumers

The Institute said that the online retail boom is overwhelmingly being driven by people wanting to save money despite concerns it hurts local jobs, the research study by the Australian Institute reveals.

The dramatic rise in consumers moving online to shop confirms many of the assumptions made about consumer attitudes and behaviour in relation to online shopping the research claims. 85 per cent of survey respondents, who said they shop online, do so to save money, followed by wanting to compare products and prices, with one in two saying they do so to save time. Yet, one in two respondents also felt that online retail is hurting Australian jobs.

The Institute said that online retail boom has begun in earnest and it is unlikely to abate soon.

The Australia Institute’s Executive Director Dr Richard Denniss said Australian consumers do not feel they are getting a fair deal from traditional retailers when they see so many products up to 50 per cent cheaper online.

“Our survey asked people by how much they think it is fair for retailers to mark up their prices to make a profit. They considered a mark-up of around 35 per cent to be fair,” said Dr Denniss.

“In reality, the average mark-up for items such as clothes and shoes is 142 per cent, and around 40 per cent for popular online items like DVDs and music.

“This shows just how many Australian consumers underestimate the cost of the traditional retail process which takes into account shipping, warehousing, displaying, advertising, sales staff and rent.

According to Southern Cross Equities (2010) domestic online retailers have doubled their market share to 4.0 per cent of 2010 annual sales up from 2.1 per cent in 2005. In addition, overseas purchases driven by a strong dollar and falling shipping prices have risen to around $5 billion in 2010, or the equivalent of around 2 per cent of total domestic retail sales.

According to the Australian Bureau of Statistics the retail sector in Australia has a turnover of $243 billion per annum. The biggest segment of that is food retailing at 39.8 percent followed by household goods at 17.7 percent; cafes, restaurants and takeaway food at 13.2 percent; clothing, footwear and personal accessories at 7.9 percent; department stores at 7.6 percent; leaving other retail accounting for 13.2 percent.

The retail sector’s turnover of $243 billion should be compared with total household final consumption expenditure of $715 billion which suggests that 34 per cent of household purchases are provided by the retail sector.

While the percentage of the retail sector being spent online is small, it is rising rapidly, and that growth is likely to continue to accelerate.

“Given the huge disparity between people’s perceptions of what is a fair mark-up and what they are being charged in bricks and mortar shops it’s not surprising that they are choosing clicks over bricks.

“The fact is, traditional retail is a very expensive way of delivering products to customers and just as digital cameras have decimated photo development labs, so too will online retail transform the way Australians shop,” concluded Dr Denniss.
According the report a tin of Heinz baked beans costs 59 pence in a Sainsbury’s store in London, but $1.88 – equivalent to 1.23 pounds – in a Woolworth’s store.

Other instances include: a pair of Camper Peu leather casual shoes runs for $US170 in the New York Camper store, compared with $290 – or $US305 – in Melbourne.

Those price differences aren’t necessarily price gouging on the part of the retailer, the report finds, but the result of Australia’s high rental prices and staff costs. The conclusion, though, is that those costs aren’t shared by online rivals, so the shift to internet shopping is only likely to quicken.