Saturday, August 06, 2011

Is the issue of buying from overseas without paying GST a red herring?

We all know the economy is soft but I can’t help feel the supposed concern by retailers may or may not be real. Perhaps it is real or perhaps it is media beat up.

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In my business I take the attitude if I’m not competitive (including the extra value I bring to a sale) then my clients should look to buy elsewhere. I don’t expect them to pay more just because I’m a nice guy. But buying something from overseas isn’t as clear cut as just adding GST.

First if you buy from overseas you usually pay in another currency and there’s a cost to convert the money. You do see an exchange rate fee from the bank but there is also a cost that is never shown which can be up to 6%. Next time you buy something from overseas use the current exchange rate and check it for yourself what you thought you’d pay and what you actually ended up paying. You aren’t getting the current exchange rate we see promoted on TV. Add the hidden charge plus the bank fees and you’ll find the GST advantage is nearly gone.

If Australian retailers made people aware of the real cost and the risks of buying from overseas they’d have educated consumers and I find by sharing knowledge with my customers they are able to make better decisions. Try taking a product back that doesn’t work that you bought from overseas. Good luck with that.

The GST I think is a red herring. Perhaps Australian retailers should look at negotiating better terms with the overseas based companies they currently buy from. Perhaps it is the margins Australian retailers like to maintain. But given exchange rate charges alone nearly wipes out the GST saving the GST isn’t making much difference. One thing consumers often don’t factor in is the delivery charge. This is standard practice to separate out the delivery and packing charge. Often a company can make good money on their delivery and packing charge. I know one well know computer company that charged more for delivery of a computer in Australia than many retailers would get from selling a computer. Educate customers on the total cost and the risks. I find educated customers are the best customers.

I don’t know about you, but I think changing the situation with GST on purchases from overseas is a red herring. What do you think?

I can’t help but think buying local makes sense in many cases. You can generally see and touch the product. You get the product immediately. If there is a problem you can return the product or get assistance. If the saving by buying from overseas including the added cost of converting money and delivery far exceeds the risk, then it makes sense to buy from overseas. As to the GST difference that wouldn’t make much difference as to whether or not I bought from overseas.

I suspect what will be happening is many people who never considered buying from overseas will now be thinking about it because the GST issue is now in the media. This will make people think it is cheaper because they won’t consider the total cost. That certainly isn’t going to help the plight of retailers.

- Kelvin Eldridge

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