Big retail mark-ups push shoppers online, report reveals

Australians are increasingly buying more of their goods online, being driven by domestic retailers marking up prices by as much as 100% in an attempt to stay competitive, a new report from the Australia Institute has found.

The report comes as a growing number of Australians are now focusing on price above all else, with figures showing that 65% of shoppers believe the ability to compare products and cost is a major factor in them moving to online shopping.

The report confirms a number of key trends – more Australians are buying online, the higher dollar is encouraging more purchases and domestic retailers have been slow to invest in online solutions.

But it also recognises that more shoppers are heading online as the dollar rises and as consumers begin to value the convenience and time savings associated with digital shopping – and also, as they begin to understand better the concept of mark-ups and profit margins.

According to the Australia Institute “Rise and Rise of Online Retail” report, 60% of shoppers say they “sometimes” shop online, although more dedicated online shoppers tend to be aged between 18-34, with 25% of this age group try to shop online “all the time”.

But by far, the biggest surprise contained in the report, according to researcher David Richardson, is cost mark-ups.

“They are quite large in some areas,” he says.

The smallest mark-ups are found in DVDs and music, up by 40%, while fresh food is marked up by 47%. Books, newspapers and magazines are marked up by 52%, while furniture is marked up by 76%.

Clothes and shoes were marked up the highest by 142%, followed by manufactured goods at 97% and electrical goods at 85%.

Most consumers believe a “fair” mark-up to be about 35%, but as the report points out, even the cheapest mark-up – 40% for DVDs – is outside of this range.

Some individual cases are quite revealing. While a Sony Bravia 40-inch set will cost $US1,079 in the United States – converted to $AU995 – the same device costs $1,999 when sold in domestic retailers.

But Richardson says customers may be confused between mark-ups and profit margins, saying many retailers are subject to higher costs than businesses overseas and customers don’t necessarily recognise this.

“This is not necessarily profit, but certainly a wide margin. And it varies a lot. Woolworths might have higher margins, but they have customer service staff on hand all of the time, and that’s certainly expensive.”

Nevertheless, the report clearly shows shoppers are moving online anyway. With 85% saying that saving money is the biggest factor for shopping online, 65% also say the biggest factor is the ability to compare products and prices.

“The advantage of online retailing is both the ability of retailers to avoid most of these costs combined with the highly competitive online environment driving down profit margins,” the report said.

“That is, many customers are reluctant to leave one shop in search of lower prices elsewhere, but those same consumers are happy to click on a different link in the pursuit of even modest savings.”

Price is now the key factor when deciding to move online, and shoppers are prepared to pay cheaper prices even if they lose out on customer service.

“While some Australians will continue in their willingness to pay for this expensive service, it is highly likely that a substantial percentage of the population will believe that they are better off purchasing the material product while avoiding the retail service,” the report states.

And while the debate continues over the introduction of a GST for online sales, the Australia Institute warns such a tax would not dissuade shoppers from buying online.

“While it is true that Australian retailer workers are paid more than their counterparts in, for example the US, as with the 10% GST this disparity is not nearly sufficient to explain the very large disparities in domestic and international retail prices.”

Online shoppers are divided into two categories – bargain hunters and mall haters. A bargain hunter is focused on price, while a mall hater is someone who prefers the convenience of buying online.

While Richardson points out that “bricks and mortar is still the norm”, there can be no doubt shoppers will continue to head online to escape these mark-ups – and they’re prepared to abandon customer service to do so.

“As more people begin to shop online and discuss their perceptions of the advantages and disadvantages of doing so it is likely that the social norms and defaults of consumers will begin to change.”