The fat margins of Australia’s few major consumer electronics retailers and product distributors are causing companies who actually make the products to tear their hair out in frustration after constant attacks from customers who compare local prices to those in the USA or UK and say they’re being rorted.
I’ve watched discussions amongst Australian customers for years on online forums such as Whirlpool and more recently on social media like Twitter and Facebook about how consumer electronics manufacturers are ripping them off compared to prices for the exact same product on Amazon USA or online retailers in Europe.
Recent comments by a group of big Australian retailers including billionaire retailer Gerry Harvey asking for GST to be applied to products imported into Australia worth less than $1000 to help protect them from overseas competition lit this slow burning anger into a firestorm of angry comments online.
Whirlpool forums member “-7-“ makes a very sensible point that:
It’s also hardly fair for the Australian taxpayer to essentially subsidise what is a protectionist measure for Australian retailers. The compliance costs will be high, the benefits marginal, the impact on shopping patterns negligible.
When I can purchase the exact same blu-ray movie for either $30 locally or $15 overseas, adding $1.50 to my purchase price won’t make me reconsider in the slightest. It will simply introduce an inefficient tax, which is the worst kind of tax.
People like Gerry Harvey only have a valid point if the difference between local and overseas prices was around 10-15%. Then a GST would make perfect sense and bring the overseas retailers in line with local ones. However currently the difference in prices is literally 50-100% in some cases, and this has nothing to do with the tax advantage for overseas retailers.
Indeed most of us already pay an extra 10% or so on overseas purchases on average… in the form of postage costs! The fact that GST+Postage+Overseas retail price is still sometimes 50% cheaper than local means there’s something very wrong with local retailer pricing.
Some of the price difference comes down to Australian retailers having to charge our 10% GST, high rents in popular retail store locations and Australian wholesaler companies who import products not buying in the same volume as the USA or Europe eg: puchasing 200 laptops to sell here compared to an American wholesaler who might buy 20000 laptops.
But it can’t account for prices for consumer items sold in Australia for 50-100% more than they do USA and Europe
The only way this can occur is because someone in the product supply chain from the factory to you buying the product at an Australian department store is making a massive profit.
The head of an Australian consumer electronics company told us that they’re “frustrated by customers telling us how expensive our products are at stores because Harvey Norman makes more than 60% margin from retail sales of our products”.
Despite the growing popularity of online shopping from Australian and overseas websites many customers still buy consumer electronics from traditional retailers where they can see the products and compare them in person.
Retailers like Harveys hold so much market share that manufacturers have no choice but to agree to high retail margins and kickbacks if they want their product ranged (stocked and displayed on shelves)
Business futurist and technology journalist Paul Wallbank recently analysed the broader situation in his ABC Unleashed article “The roar of the business dinosaur”:
This campaign started last year with Harvey Norman co-founder Gerry Harvey and Myer CEO Bernie Brooks threatening to setup Chinese-based online stores to overcome the claimed tax and tariff disadvantages of Australian retailers.
At the time there was little sympathy for this view and the latest campaign from the retailers has attracted even less support from consumers quickly pointing out the main reason for going online are the poor sales experiences and high prices on offer to from Australia’s larger shopping chains.
The “Fair Go for Retailers” alliance isn’t really about GST – it’s about middle-aged retailers clinging to a 1980s model of doing business while failing to understand how the economy, society and their markets are changing. Just their miscalculation in the public mood indicates how out of touch these folk are with their customers.
EDITOR: I forgot to mention Flexirent and other financing plans that sales people at many big chain retailers often pressure customers to take up, with long “interest free” periods so by the time they expire the customer ends up paying interest rates like 24% or more.
This *really* adds a lot to the retailers profit margin.
Paul Wallbank wrote a followup to his ABC article, noting that the loss of tax dollars from exempting sub $1000 imports from GST is politically smart at present but “should the porridge in Australia’s Goldilocks economy start going cold, then Treasury will start looking for those lost GST dollars“.
12 thoughts on “Harvey Norman Margin Over 60% Percent – Frustrated Technology Manufacturer Speaks Out”
it must be a very esoteric product to be able to make 60% floor margin at retail, those types of margins just don’t exist in regular consumer electronics, retailers rely on cables, warranties and other accessories to try and make up the margins that just aren’t great on run of the mill products these days, Harvey might be greedy but those kinds of margins just aren’t out there across the board
@jokiin Why do you think you can’t get 60% margin? HN has a HUGE market share and once you get a huge market share, the terms turn around and HN has all the power. You won’t give me 60%? Then guess what…. I won’t stock your item, then where does samsung for example go to sell TV’s? Yes there are other retailers, but they might be closing the door on 40-50% of the market.
This happens in everything, places like bunnings do the same thing. An example is GMC, yes they make crap tools and bunnings turned around and said we are not stocking you any more due to the high return rate. Guess what? Without ‘bunnings’ sales the company went under within 3-6 months due to very limited income streams.
Bunnings demands the cheapest price and the biggest margins.
Coles/Wollies have 80% of the market. For every $1 spent in Australia on food, 80 cents of that ends up between two companies. What do you think would happen to a food brand if it didn’t let Coles/Wollies have the margin markup they wanted? They get left off the shelf?
Furniture has those kind of markups, mostly because the floor space cost is so high due to their physical size, it’s been a long time since any retailer has had any electronic product that could carry that kind of margin, a great product might have 30% margin but trying to maintain that is a challenge
I have no sympathy for Harvey’s and their current whinging to the government but they don’t have stores full of electronic products making them 60% margins, there’s a lot more to the pricing disparities than just retailer margins, Harvey is often more expensive than other retailers I’ll give you that but not so much so that they are making massive margins over and above what other retailers are
there are lots of common misconceptions about how much profit retailers make on products in this country, it’s not nearly as profitable as the majority believe, yes products in many cases could be cheaper but it’s not the retailer being greedy that stops things being cheaper, Australia is an expensive place to do business unfortunately
inspiring information! I am looking forward to reading more from you!
@jokiin, hmmm, why is it that I can shop locally in brisbane and buy brand new computers and their perpherals for up to 50% (commonly 30% less) less for the exact same product at Harvey Normans if, as you say, “not the retailer being greedy”. eg: I just bought a canon mg5150 for $109 at a smaller shop (and it wasn’t on sale) whilst gerry’s were retailing at $179. Gerry and the like are greedy old coots always yelling in my loungeroom trying to convince me they are the cheapest. I’m sorry for those who get sucked in by it.
$179 is the rrp of that product according to the Canon website http://www.canon.com.au/For-You/Printers/PIXMA-InkJet-Printers/MG5150 stuff like this most often can be bought at smaller retailers at lower prices, no surprises there, at $109 it would have practically no margin in it I’m sure, MSY sell it at $109 which is a good indicator of how thin the margin must be at that price
So it just goes to show that you can survive by not making huge margins, quite well I believe as the chain of shops you mentioned shows that it can be done, so your point is what?
MSY survive on small margins by cutting out everything that a regular retailer might offer, customer service, support, advice, showroom, finance options etc, they are effectively a bricks and mortar version of online shopping, bare bones retail, sure it can work in some categories but it doesn’t work for all
Anyway it’s easy to cherry pick and find an item where there is big margin, it’s not across the board and even so items like this often don’t sell for those prices anyway but end up bundled into an offer to try and offset the poor margin of products like computers. Peripherals and accessories have traditionally been used like this, you say you bought a printer at $109 that wasn’t on sale, the rrp is $179, the retailer you bought it from discounted it, sale, discount, call it what you will it’s still the same thing
I bought a HP laptop from Harvey’s and their shelf price was within $50 of anywhere else I could find the same model at the time, not 30 to 50 percent dearer, I’m sure any accessories I might have wanted to go with it would have had plenty of margin in them, no retailer makes enough sales of these expensive accessories to make up the difference though
There are enough big box retailers around that are public companies, have a look at the ASX when they publish their annual results and see if you can find one that is making 60% profit margins
60% Jeez that is to much…2% is normal!!!
Retail markups can some times be 300% “60% Jeez that is to much…2% is normal!!!” No 2% is not the norm! The fact is a retailer especially the big ones many times will also run items as loss leaders 50% or more under cost so if you cherry pick and not look at the whole catalog is not fair to judge. As a a matter of fact a business is not based on markup it is based on profits the mark up is based of that. So if you really want to understand why your country is having such huge markups you need to look at payroll company taxes forced government benefits etc etc etc As an example most large retailers work at less then 5% profit they make the money in volume but this is why many times you suddenly see a large retailer go under. Also remember the cost of the import is also reflected in the trade and the value of the countries coin 😉
Well said Mitch