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Wednesday 6 August 2014

Bricks & clicks affecting the scuba retail environment in Australia

Australian retail heavyweights Gerry Harvey from Harvey Norman and Myer CEO Bernie Brooks have propelled the issue of online shopping in Australia into the media spotlight. Buoyed by a surging Australian dollar, unlimited access to information & prices at the touch of a keypad, Australians are now adept at and loving online shopping.


Is this the end of scuba retailing in Australia as we know it? What effect will this have on retail dive operations? I say, no need to worry, scuba diving is not a virtual activity, you can’t get airfills over the internet, you still can’t effectively learn to scuba dive online – you still need to learn the drills by actually training in-water, you can book a dive charter boat online but that won’t get you out to the reef or on top of a wreck.

Dive certification agencies such as SDI/TDI, SSI & PADI have offered the e-learning options for years now in the recreational diving industry; my own experiences in the vocational educational sector offer online learning such as podcast lectures, webCT & assessment options. Open Universities Australia catchcry is Study anywhere, anytime and noted institutions such as the University of Western Australia, Curtin University, La Trobe University, UniSA & Monash University are some of the signatories. Both Monash University & UWA are G8 institutions, the leading practitioners of higher education in Australia.

My employer, Polytechnic West offers online courses providing flexible learning opportunities for students seeking alternate learning experiences who are either working full-time or living in areas not easily accessible to facilities. As a project manager leading client focused programs, I can well attest the focus of management to the success of such programs. The academic development of the course can be done online but the actual workplace assessment is best done in the actual or simulated workplace environment, that may change as new technologies emerge but at time of writing the most effective workplace assessment is actually being there and observing the participant. No sane dive instructor would assess the skills of a student diver by viewing their first dives on a computer screen via web cam.

Online media heavyweights such as The Australian Newspaper & The Sydney Morning Herald are online, well known publications such as Dive Log Magazine can be found at www.divetheblue.net and one needs to ask the question “Is the internet the evil destroying lives and jobs?”

How many people bank online, pay their bills by Bpay, funds transfer or even use EFTPOS? Once upon a time we all received our pay packets in cash, I wonder how many of us still receive their pay in cash?

Looking at case studies it is clear to see that these business institutions have the so called physical bricks & mortar operations. These established organisations have adapted to change and remodeled their business structures accordingly to remain competitive. Do we need to legislate against online retailers, to fight the evil of competition or do we need to respond to the operating environment and develop competitive strategies?

Gerry’s main argument are that online retailers do not pay tax for sales under $1000 but lets look further into his argument. For starters, this only applies to foreign online retailers operating outside of Australian borders. Australian online retailers pay tax on all transactions so I assume that Gerry & Bernie only have an issue with off-shore and not Australian based online retailers. The bricks & mortar business has costs such as lease, electricity, wages, insurance and these costs are all added to the cost of the product whether it be goods or services, everyone understands that. Gerry is telling us to support Australian online retailers if you must shop online.

The implementation of such a program to collect tax from international online retail sales is estimated to outweigh the actual costs of the revenue gains. The GST has been with us for more than 10 years now and one might be a little suspicious of the timing of such an opposition to online sales.

Dive centres & resorts will need to adapt to the changing retail environment, online shopping in Australia is growing and will continue to grow with sales exceeding $15 billion online in 2013. Businesses and corporations not meeting the needs of the consumer will always struggle, business that innovate succeed.

Do we revert to protectionism of the retail industry when the rest of Australian industry has had to become globally competitive since the 1980s?

A dive centre or resort has much to offer the consumer; it may be diver training, equipment sales, equipment servicing, dive trips or services such as airfills. Travel agents reacted to online sales by restructuring their services and targeting corporate travel and upmarket holiday packages a decade ago. Travel agents continue to survive despite the fact that consumers can now book their ticket directly online with the airline.

Still one of the leading factors influencing new diver’s choice of equipment purchase is the advice of their instructor. The instructor builds a rapport with students and many new certified divers book directly on the next course and purchase their equipment through their dive centre. A dive centre & resort always has the advantage over an online retailer with personalised service where online sales are always price sensitive.

New divers generally purchase their mask, snorkel & fins kit straight after their course and may even include a wetsuit & bag. Secondary purchases include regulator, BCD & computer and these hardware purchases are more likely to be done online than the mask, snorkel & fin kits. Consumers at this stage tend to be well researched and price sensitive as opposed to newly certified divers seeking software kits directly after certification.

Many innovative dive centres offer far more than dive courses and equipment. Dive clubs are a fantastic opportunity for newly certified divers to learn new local dive sites while under the supervision of the store divemaster or instructor. Meeting people with similar interests in diving with exposure to dive travel & interesting pursuits such as photography, videography, marine biology, freediving, spearfishing & technical diving with the friendship and social gathering are a strong factor influencing the decision to join their local dive centre club.

Certain industries have barriers to entry, they may be due to government legalisation as an operator can’t just go and start up an electricity business and sell energy to the consumer or I can’t become a doctor without the appropriate university education, internship and registration with the AMA. The recreational diving industry has no such requirements; there is no requirement that a dive centre owner has to be a dive instructor or even a diver for that matter as I know a number of dive centre owners that don’t dive and there is nothing wrong with that. It is a free and open market where competition is encouraged as the market is for the consumer – not the retailer, wholesaler or manufacturer.

The ACCC mandate is to promote competition and fair trade in the market place to benefit consumer, businesses and the community. The dive consumer has the greatest information in the history of the world at their fingertips, the internet. Despite the efforts of the ACCC, Australian scuba prices are still inflated as compared to the rest of the world, the consumer knows this as all that is required is a google search to research the best prices, specifications & availability of the product that interests them.

This has not been the case for Australians in the past in the case of the recreational diving industry, being the island that we are, we are isolated in both location & competition. Unlike Europe, we can’t just jump in a car and be in another country in a matter of hours. We unfortunately have neither the population concentration, the manufacturing base for dive equipment nor the diversity of retailers in Australia to promote the required competition.

So how does that affect the recreational dive market in Australia? An equipment manufacturer is generally focused on their core business, designing, testing, manufacturing & promoting their line of equipment. Worldwide, the Australian market was relatively small as compared to the US, Asia & Europe and a manufacturer would (not in all cases) appoint a wholesale distributor for their product in a country outside of their core market. The manufacturer would spare the expense and risk conducting business in a country outside of its core market and still enjoy the sales benefits with the possibility of setting up a regional office should the critical sales mass be met. Other advantages may include selling older models into the Australian marketplace while releasing new models into Europe & the US during the Australian winter.

Most new products are launched at DEMA in the United States for the North American market or the Dusseldorf Boat Show for the European market, how many new products are launched in Australia? I have had representatives from a leading equipment manufacturer tell me they intend to launch a certain range in Australia 15% above the northern hemisphere price.

The isolation of Australia geographically combined with major overseas equipment manufacturers led to a concentration of products in the hands of a few wholesale distributors who were able to dictate terms to the retailers. There have been a couple of high profile cases of price fixing in Australia in regards to scuba products; one such case required the manufacturer to print an explanation in Dive Log magazine.

The big multinationals such as Woolworths & Coles-Myer dominate the retail landscape in Australia with stores such as Woolworths, Myer, Coles, Kmart, Big W, affiliated liqueur outlets & fuel. In much the same way, dive centres & resorts are dictated to by the equipment manufacturers & wholesale distributors as dive centres & resorts are relatively small and have minimal negotiating leverage.

A retailer that bypasses the local Australian supply chains and then passes the savings onto their clients, the Australian diving consumer has to be meeting the needs of their community.

The issue of grey imports, better known as parallel importing has been brought to my attention while at the ADEX show in Singapore earlier last year by a dive industry participant and I am unapologetic. I have been the same question by a number of people “Don’t you know you are spoiling the market” and I always answer the same “For who, the consumer? The retailer???”

I disagree with Gerry Harvey, the internet is not new nor is it going away. The Australian workforce has been exposed to globalisation since the 1980s and workers have had to deal with international competition and it has changed the way we work. The Australian retail environment should not hide behind protectionism and tariffs as the rest of the economy is competing internationally & competitive worldwide. The government does not need to legislate against online retailers when heavyweight lobby groups pressure on the government to protect their special interests at the expense of the Australian consumer. The Gillard government has put its case forward for a national broadband network and one would expect that despite the lack of the cost benefit analysis, the Gillard government supports e-commerce.

The Australian consumer has embraced the internet and e-commerce, regressive policies designed to stifle competition will not be tolerated by the Australian consumer. The information age is now and consumers are able to research prices overseas in countries and economies that offer far more competitive pricing than some but not all Australian retailers. In all other forms, Australian industry has reformed to become competitive in an international marketplace; the industries that were not competitive should not be subsided by the taxpayer or consumer. The retail industry has a captive market and consumers have paid for this in the past.

Research shows that internet sales are increasing and will continue to increase in the future, businesses that have a clear strategy to meet the changing needs of the consumer will continue to excel and business that neglect the needs of the consumer will perish.

Australian dive retailers will continue to exist as scuba diving is a physical and not a virtual activity, wholesalers and manufacturers will need to innovate their operating structures to support dive centres and resorts, the supply chain is the key to the success of the retailer.

I hope that Australian consumers will support continue Australian retailers operating in both bricks and clicks type operations, should Australian retailers be uncompetitive in their pricing and service. Who can blame people seeking better conditions if Australian retailers are unable to provide quality service and competitive pricing?

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