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Online shopping: Price of a bargain

The world has become a much smaller place for the 21st century consumer. These days, a shirt with a $300 price tag at a Newmarket shop might be picked up for $150 or less from a web-based store in the United States.
Price discrepancies between markets are not a new phenomenon. In pre-internet times New Zealanders had to take a trip Stateside, or to Hong Kong or Singapore, where greater economies of scale have benefited shoppers for decades.
But the meteoric rise of online stores such as Amazon, which has reported sales of about US$48 billion ($59 billion) over the past year, have made overseas prices available to anyone with an internet connection and credit card, changing the face of retailing forever.
While that's great for consumers, it also means a huge number of purchases that would have been made with local retailers are now going overseas and delivering little economic benefit to this country outside the freight sector.
About 34 per cent, or $910 million, of Kiwis' online purchases are expected to be have been made on overseas websites last year, according to research by PriceWaterhouseCoopers and Frost & Sullivan.
 
A new report from accounting and advisory firm Ernst & Young has some sobering predictions on the impact overseas websites could have on traditional retail in Australia, raising issues that - according to the New Zealand Retailers Association - also threaten businesses in this country.
The report, commissioned by Australia's National Retail Association (NRA), says about 118,700 Australian retail jobs will be wiped out by 2015 as a result of online competition.
Of that total, 33,400 could be directly attributed to domestic buys being redirected to online retailers abroad as consumers take advantage of the "low value threshold", which makes goods purchased overseas for less than A$1000 ($1280) not subject to GST and other duties.
The report also says the tax loophole will result in Australia missing out on up to A$6.5 billion in GDP over the next three years.
"The jobs crisis unfolding in retail dwarfs the predicament and dilemmas that are confronted by the demise of the Australian manufacturing sector," NRA executive director Gary Black told ABC television last week.
Although the GST-free threshold in New Zealand is set much lower, at $400, the NZ Retailers Association says it still threatens the sector and the industry group is lobbying the Government to make all goods bought online subject to the consumer tax.
Terry Cornelius, executive director of Auckland department stores Smith & Caughey, says the fact that so many purchases are being diverted overseas means job losses in New Zealand's retail sector are inevitable.
"Turnovers drop and [businesses] have got to reduce staff numbers," says Cornelius, who is also the president of the NZ Retailers Association.
Discontent over the size of Australia's low-value threshold, which has been bubbling away across the Tasman for a while, heated up last year with the high-profile collapses of the Borders and Angus & Roberts book retail chains.
Lobbying from Aussie retail heavyweights, including Harvey Norman co-founder Gerry Harvey, resulted in a Productivity Commission review of the Australian retail sector.
It concluded there were some grounds for lowering the tax-free threshold but no immediate changes would be made and retailers needed to find their own solutions to the issues facing them or risk being snubbed by consumers.
"Retailers that do not or are unable to respond effectively to such pressures will face serious challenges," the review said.
That's a view echoed by Briscoe Group boss Rod Duke, whose NZX-listed firm runs Briscoes, Rebel Sport and Living & Giving stores and posted a record full-year profit this month.
He says making GST payable on all purchases abroad would result in a fairer trading environment for businesses, but retailers also have to ensure they remain competitive.
"If the price is outrageously different [online], well then from my point of view it's bad luck for the retailer."
Duke says Briscoes has benefited from selling products that people don't tend to buy online, such as dinner plates and toasters.
"But I do think if I was in the book business or a similar business that's getting decimated by the purchases offshore from online stores I'd certainly be really concerned."
Cornelius says most people who regularly shop online know about the $400 threshold and make sure their purchases don't exceed it.
And many online retailers don't charge for freight, meaning it doesn't cost crafty consumers a dime to split their purchases into smaller consignments and avoid getting a GST bill from Customs, he says.
But while the NZ Retailers Association continues to lobby for the abolition of the threshold, politicians don't seem too keen on making any changes.
After a review on GST thresholds last year, the Government announced it would keep the de minimis level - the minimum amount of duties collected - at $60. That is 15 per cent of a $400 purchase, meaning only goods valued at over that amount will be taxed.
A lower threshold would increase compliance costs to importers and not produce a worthwhile increase in revenue, the Government said.
And lowering the threshold was not an item on the Government's tax policy work programme announced by Revenue Minister Peter Dunne last week.
Sinclair says politicians are aware of the increasing challenges overseas online retailers pose to local businesses, but one of their main concerns is around the cost of collecting tax on smaller purchases.
"We're doing some international research ourselves, looking into whether there is a simple way of collecting the de minimis, possibly through credit cards," he says.
But how would local online shoppers react to GST being applied to all of their overseas purchases?
"I don't think they'd feel very good about it at all," says Consumer NZ chief executive Sue Chetwin.
"I think consumers would be pretty pissed off about it - it would just put an unnecessary burden on them."
Retail pricing invokes high levels of emotion and many Kiwi shoppers believe New Zealand retailers are charging exorbitant mark-ups and making big profits even when their products are on "sale".
Any attempt to limit their ability to get a good deal over the internet would likely be met with discontent.
Chetwin says the status quo regarding the tax collected on overseas purchases is sensible. "If you're getting down to collecting $2.50, what's the point of that?"

Hit parade Top sites
Websites generating DHL deliveries into NZ:
1. Amazon.com. Books, music, clothing, jewellery
2. Shoebuy.com. Shoes
3. Shopbop.com. Fashion
4. Iherb.com. Herbal health products
5. Wiggle.co.uk. Bikes and cycling clothing, accessories

As at November 2011
2011 Retail sales
Total - $68.7b
Online - $2.68b
Online purchases overseas - $910m
Sources: Statistics NZ/PwC/Frost&Sullivan