Digital technologies gave NZ retailers either a huge opportunity or risk of obsolescence. Taxing NZ online shoppers on overseas purchases will not help NZ retailers compete. It is not the governments issue to fix. NZ retailers need to assess their current strategies, business models, talent, review investments and market opportunities. NZ retailers, disrupt your business or have it disrupted for you.
LOCAL VERSUS GLOBAL ONLINE SPEND
Yes, increasingly more money is being spent with international retailers. Annual growth in local online spending is typically between 4% and 8%. On the other hand, Kiwis spent $40 million more for the March quarter this year than the same 3 months last year with international retailers, an increase of 18%. Marketview, a Wellington-based analytics firm estimated Kiwis spent about $1.1 billion on international online purchases during 2013, twice as much as four years previous.
ONLINE SHOPPERS WON’T GET CHARGED GST ON OVERSEAS PURCHASES
Collecting GST is problematic. You can’t ask credit card companies to do it, besides people would use PayPal to avoid it. The banks won’t either. New Zealand Bankers Association Chief Executive Kirk Hope said the idea was “laughable”.
According to BNZ, 30% of Kiwis overseas online spend is with US retailers so consider this. Hypothetically, you get US retailers to collect GST on behalf of the New Zealand Government. In exchange New Zealand retailers would have to collect sales tax on behalf of thousands of US taxing jurisdictions, each with their own set of rules. The cost of collecting GST would be greater than GST collected.
Currently there are no local or federal rules requiring companies not based in New Zealand to collect GST. This is similar to the United States where the US Supreme Court has ruled on multiple occasions that a State can only force a retailer to collect sales tax if the retailer has a physical presence in that State.
This is why Netflix will not be charging New Zealand subscribers GST. Netfix pays taxes as required under local and national laws. Netflix has a market presence, not a physical presence in New Zealand and therefore is not a local entity and not required to collect GST.
Even if GST was added to overseas online purchases… yeah, still cheaper buying overseas. Case in point, Stuart Weitzman loafers sold from a NZ retailer online NZ$590 plus shipping. Same shoes from stuartweitzman.com NZ$278.61, and free shipping. For arguments sake add GST they’d cost NZ$320 and I still save $270 so no GST on overseas purchases is not the real issue here.
UNFAIR? THIS IS COMPETITION
According to the Retail Association spokesperson, taxing overseas purchases would “even the playing field”. The above example (and ask any online shopper, they’ll give you others) discredits that statement. Retail New Zealand’s spokesperson said that the existing $60 tax threshold meant “New Zealand retailers could not compete with foreign websites.” Well, no, most didn’t even try.
The first disruption to traditional retailing was ecommerce two decades ago with the founding of eBay and Amazon. Disruptive technologies like social media and mobile have changed the way people shop. The consumer decision journey provides a framework to look closer at this disruption. The effect of mobile, digital and social media can easily be seen at every stage. Many NZ retailers just didn’t see it.
THE OPPORTUNITY FOR NZ RETAILERS
Yes Kiwis will continue to spend more with international retailers and yes this increases competition for New Zealand retailers. However, NZ retailers are looking at it the wrong way, instead of complaining local dollars are going overseas, NZ retailers should be selling to the world. Global B2C ecommerce sales hit $1.7 trillion last year. Get in on that.
According to a survey by Kucher & Partners, most shoppers did not cite ‘lower prices’ as their primary motivation for shopping online. It is a backward way of thinking to compete on price. The only way to compete in the digital era is to deliver more for more, because if you are competing on price, you will lose that game to Amazon. The bottom line is that the more commoditised the product is, the more people will search for the cheapest price. Competing on price is not a sustainable competitive advantage anyway.
NZ RETAILERS NEED TO INVEST IN DIGITAL
Have NZ retailers invested in the technologies required to compete in a digital economy? Some have. In April Google rolled out their mobile-friendly update, so Google now boosts the rankings of mobile friendly pages. Why is this important for NZ retailers? because increasingly those 1.9 million Kiwi online shoppers are using mobile devices to make purchases.
New Zealand’s mobile commerce is a $3.9 billion market, and Frost & Sullivan predict mobile commerce will reach $9.6 billion in 2019. NZ retailers need to be aware of consumer expectations around digital experiences and the impact on sales.
Marketing has changed more over the last 5 years than it has in the last 25 and yet many businesses have not changed how they market. According to Yellow’s Business Confidence Survey, only 34% of NZ businesses thought digital marketing was an area they needed to upskill in. The survey showed that many NZ businesses don’t consider digital marketing a core business activity, and many businesses do not have an online strategy. Read more about the digital marketing skills gap and how to fix it here. If NZ retailers are to compete in a global market, they need to invest in information technologies, digital and talent.
NZ RETAILERS NEED TO CREATE A POINT OF DIFFERENCE
Yes shops locally online and off are closing but this is not an issue for the government to fix. NZ retailers need to up their game. NZ retailers can no longer expect to sell products where price is the only differentiating factor and make bank. Mighty Ape sell highly commoditised goods, but they focus on driving engagement and loyalty with a delivery promise.
Value propositions need to be created for customer values, not for products or services. Take Kowtow clothing who believe you can be a responsible consumer but look good doing it. The brand is design led with a sustainable business model based on fair trade organic cotton. Kowtow have a strong brand presence online and off with local and global brick and mortar stockists. They didn’t just create a unique point of difference they created something worth talking about.
The only way for NZ retailers to compete in the connected economy is to create unique brand defining experiences. The dream is free, the hussle is sold separately.