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Outsource magazine: thought-leadership and outsourcing strategy | March 2, 2015

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Australian dollar gives boost to virtual malls

Australian dollar gives boost to virtual malls
Martin Conboy

The current value of the Australian dollar is panicking Australian retailers.

Shoppers are leveraging off the strength of the Australian dollar and availing themselves of tax-free bargains on overseas websites. All of the usual Christmas items, i.e. fashion, clothes, electronics, books, music, and toys are being scooped up.  The Aussie dollar is trading around a 28-year high of 101.1 US cents. This is driving a frenzy of online buying activity.

Online shopping has been around for a while and goods can be obtained from anywhere in the world and delivered in a very reasonable time frame. However, the strength of the Australian dollar is like pouring fuel on a very hot fire.

Bricks and mortar retailers who smugly suggest that consumers cannot make a purchasing decision without holding a product need to ask themselves where the high street record store went.  Remember them? Where you used to go in and listen to a new album, and they had soundproof booths where you could listen in private?

It looks as if bookshops are the next to go. It’s now cheaper to buy a book from Amazon.com and pay the delivery fee than it is to buy the book locally even after discounts.

With advances in technology and changes in the way people are reading, the book industry is about to face one of its biggest ever-evolutionary challenges. As more and more people get an iPad or similar device, digital technology is starting to impact on the world of books with bespoke electronic reading devices mimicking a printed book by using e-ink to provide a non-flickering, easy to read screen, and adding features such as being able to store multiple books at one time, search functionality and allowing wireless internet connectivity.

There is a GST (Goods and Services Tax) free threshold on goods bought from overseas websites. The Australian Retailers Association (ARA) guesstimates that offshore shopping is costing A$600 million in lost tax revenue. GST is not applied to imported goods costing less than $1,000. But who in their right mind would spend more than A$1,000 in one transaction on an internet transaction?

Most savvy shoppers wait until the post-Christmas sales to find bargains. However, online shopping is between 10 and 50 per cent less expensive, depending on the item than local retail prices. So they figure, why wait? The ARA conducted a survey that found that 60 per cent of 18 – 24 year olds had bought goods from a non-Australian website in the last three months, with most saying that the strong Australian dollar was the reason.

Research firm Frost & Sullivan estimates than Australians will spend A$12 Billion online this year. The downside risk is that there are real complaints which include hidden delivery costs, poor quality of goods and electrical items than do not work in Australia.

This is against a background of softer business conditions that dropped to their lowest level in more than a year in October, suggesting Australia’s economic activity may be faltering.

The National Australia Bank business conditions index dropped to 2 in October from 7 in September, well below the long-term average of 6. It was the lowest monthly level since July 2009, when business activity was still recovering from the impact of the global financial crisis. The results of NAB’s October survey were taken before the Reserve Bank surprised the market by lifting the official rate to 4.75 per cent from 4.5 per cent in early November.

In the broader economy, building approvals continue to sink, while house prices have tracked sideways for months, weighing on household sentiment toward spending. The Australian dollar’s march past parity with its US counterpart has dented local retail sales and tourism.

The national unemployment rate climbed from 5.1 to 5.4 per cent, despite an extra 30,000 jobs in October because of an unexpected jump of 62,000 in the number of Australians making themselves available for work. If maintained, the jump is good news because it will increase Australia’s productivity capacity and take pressure off the job market. The participation rate, which measures the proportion of working age Australians available for work, climbed to an all-time high.

If job growth continues near its present pace rather than slowing as predicted, Australia’s unemployment rate will reach 4.75 per cent well ahead of the June 2011 date projected in the update and 4.5 per cent well ahead of the projected June 2012 date. The Reserve Bank is expected to lift its cash rate from its present 4.75 per cent to 5.75 per cent throughout next year, implying mortgage rates approaching 9 per cent by late next year, back to where they were before the global financial crisis.