E-Tail or Retail: When to buy online, and when from a bricks-and-mortar store

High street retailers say they are under attack from virtual stores selling more cheaply: should we feel sorry for them, or follow the bargains online? Anthony Fordham reveals where’s best to spend your electronics dollar, and when.

A recently possibly ill-informed attack by the nation’s retailers against online stores has particular resonance for us here in the consumer electronics market. While there are plenty of products that maybe really do need a face-to-face relationship between retailer and customer to be properly sold and supported, gadgets and tech probably aren’t among them.

Think about it: if you’ve properly researched the product you want to buy, checked the reviews in magazines and websites like this one, what can a retailer possibly offer, except a high profit margin? Every product is identical, sealed in a box, subject to the same conditions on its warranty.

Apple is the extreme example of this. Third-party retailers (the so-called ‘partners’) can’t discount, know little more about the product than what’s written on the Apple website, and most importantly can’t even accept returns or warranty claims. All they can do is hand you a sealed box with an Apple logo on it. All they save you is waiting around for the courier to bring your new Apple TV or whatever.

That said, Apple is a bit of a funny example when it comes to bricks-and-mortar retail, because buying from its own stores is also exactly like buying from the website, except you save on the shipping fee. The same can’t be said for most other brands.

The pricing gap between bricks-and-mortar and online has grown so huge, that in itself spurred Harvey Norman and others to release their slightly desperate call for the government to charge GST on products purchased from online stores.

So online has retail beaten hands down, right? Of course, the reality is never that simple. Let’s take a closer look at the problem.

The real price

Obviously products cost companies more to produce than just the sum of the raw materials that goes into them. Each amp or TV sold has to incorporate a slice of the marketing, the packaging, the shipping, the rent on the factories, the payroll, taxes, import duties, etc.

The actual profit though is pretty arbitrary. What will the market be prepared to pay? Once upon a time, consumer electronics ran at a pretty high margin, sometimes upwards of 30 percent. But then cut-price retailers came along, churning out TVs in bulk, happy to make only 5–10 percent on each unit, because they knew they could sell ten times as many as a specialist store, or even a department store.

But then online shopping came along, and the operators of these shops realised that because they had so few overheads – no display space, no sales staff, no commissions – they didn’t need to make several hundred dollars on each TV. They could survive, even thrive, on $50 profit per unit.

So what’s the real price for any given piece of consumer electronics? What price should you pay? Well – it’s the cost of the unit to the retailer, plus tax, plus whatever the retailer feels like charging as profit.

And here’s the thing – many bricks-and-mortar retailers are perfectly capable of selling $2000 products at a $50 profit. So for the mass media to suggest that you can definitely save hundreds just by shopping online, is actually a bit disingenuous.

The trick is to know something about how much a product costs the retailer before asking for a discount. And you can figure that out by indeed looking at online prices.

The online price, written in exciting red text at the top of the site, often doesn’t include shipping costs, which can add upwards of $100 on large items.

If you think you have the gift of the gab, have that mysterious ‘x-factor’ that makes a harried, margin-obsessed, quota-driven salesman on the floor of a major retailer think you deserve a big chunk off the RRP, you could end up paying only slightly more than the online price. And you’ll know you have the right product, and you’ll get to take it home that day.

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  1. My wife just bought a Canon EOS 550D (twinpack lens) for about $1000 online.  The best a bricks and mortar could do was just under $1500 in their mega-sale.  I’m not sure who is taking that extra $500, but I’d rather it was in my pocket than Mr. Norman’s.

  2. Retailers like Dick Smith and JB HiFi are fine because they sell for decent prices. It’s mostly retailers like Harvey Norman that are being done in by online retailers which is better for all of us because the big guys make too much in companies like that.

  3. Sometimes you have no choice but to buy online when something is not readily available in a regular shop. Having said that I have never purchased anything good from an online bidding website.

  4. I buy from stores because it’s quicker to receive the product, safer and you can get a feel for the product.

    Might I like to end the war below me with, the internet was never made to handle electronic transactions.

  5. We regularly go up against online guys operating from a bedroom who have no stock work a day job so no wages, and no rent etc. Every one of them collapsed (usually owing suppliers and customers money) when we matched prices, because people want the price and a real business at the same time. If I spend 3 or 4 hours with a client I don’t expect to be bent over though. So we did a lot of youtube video and then put it up on a screen in the store. When someone asks a question, we hit menu on the DVD player (media player wasn’t as user friendly for customers) and said, try this – and handed them the remote. Unfortunately so many go and buy online instead of just coming in with a list and the price they would offer us. Usually we say okay and get the sale. Better to do that and send another bedroom business to the dust. Eventually more retailers will be gone and we will remain to provide instant gratification and a good price. We’ll need the other stores to be gone, as we will need lots of customers to cover the running costs. I’m also manufacturing, direct importing etc anything I can. And for the guys selling stuff cheaper than I can buy it, I screw them down on a big order and resell it with a small markup. At least I stay in the game.

  6. If you’re suggesting that people demo the product at the bricks and mortar store, then you should also recommend they purchase there too.

    Working in retail, it’s painfully obvious that people get their information off trained staff (who have to be paid wages … which of course equals higher prices), only to purchase “cheaper” online.

    Do you see the problem here?

    If the bricks and mortar stores can’t afford to keep their knowledgable staff, there’s a good chance they can’t afford their rent. Sooner or later you’ll find stores closing down because they can’t match online prices.

    Then your ONLY option will be to buy online.  Provided you don’t work in retail, because you won’t have the money to buy anything now that you’re unemployed.

    Extreme?  Yes.  But please use your moral compass when shopping.  If you get excellent service at a retail store, please reward them with your purchase.

    PS: You’ll find the majority of products in Australia are overpriced because of the distributer’s decision to place a hefty mark-up. Because retailers aren’t allowed to source their products from overseas, they can’t offer them any cheaper.  Allow retailers to source from overseas, and the prices will plummet.

    1. Only an idiot salesman would say something as stupid as “use your moral compass when shopping”. Why would any hard working Australian want to get ripped off in price for a product purely because a salesman took 30 seconds to help out. If the salesman cannot match the price then they dont deserve the sale. And the only reason a brick and mortar store will close is because the buying public will be sick of getting ripped off by the stupid price difference compared to online. Stores have had it so good for so long and now that they are being exposed for the very inflated prices they are crying poor. You Stephen Scott are living in fantasy land.  

      1. Greetings from Fantasy Land Mr Savage.  Come into the store I work at and you’ll find that our sales people spend anywhere from half an hour to half a day (to days) talking through high end solutions to help customers.

        We’re talking high-end audio visual equipment here.  We do everything to keep the price as competitive as possible because we understand that there are a plethora of options out there.

        But it’s going to be the death knell of speciality stores like ours if these people take the expert advice we have provided and then purchase online (which happens).

        They have used hours of expert help to identify the perfect products for their situation, and thank us by not buying from us.  Sure, in some cases the overseas price is up to 30 or 40% off.  But the majority of the products we stock don’t differ by more than 20%, and many are comparable when you include delivery.  

        I believe the expert advice is worth that much.  There’s no moral compass there – this is paying for what you have used. That’s not fantasy land.

        If you’re talking about the Good Guys, Harvey Norman or any of the other stores that have sales reps who are only concerned about sales targets, I have to agree with you.  But speciality stores that employ knowledgeable staff are suffering here.

        I’m sure you’ll enjoy living in a world where you can’t wander into a shop to see what something looks like, or talk to someone face to face about your specific needs and what would work best for you.  Yeah, good luck with that.

        By the way, I’m not a salesman, just someone with a job that’s probably going to be non-existent soon as we move to a dumber society.

        And if you read my PS – you’ll note that the main problem with inflated prices comes from the distributor. This middle man imports goods from overseas, adds their mark-up, then on-sells to retailers.  If we could purchase directly from the producer overseas, we could match or beat the online prices.  Nothing to do with the retailer.

        It happened with CDs years ago – allowing parallel imports slashed the prices.

        If you really want cheap prices (which I do too), why not take a torch to the faceless distributors who have been skimming the profits all these years.

          1. If there was a way that benefited us and the customer we would. 

            At the moment if we imported from overseas (“grey importing” which is illegal), we could match online prices.But products imported this way don’t have Australian warranties, so any issues (from minor servicing to returning faulty products) have to be sent overseas, which can take weeks if not months to turn around.That’s a pain in the butt for customers to have to do it that way, so what can we do?Until the government relaxes importing rules we’re stuck with the current situation.

            BTW, love “Bend-over”.

        1. I actually think On-Line will help the specialist retailer, Stores like GG and HN don’t train their staff or offer anything above the online experience other than touch. If staff are well trained yes you will lose some customers to the net but you will gain more who are willing to pay for service. The problem now is service is so hard to find.
          As for your comment about direct import, that is all well and good if you don’t factor in  minimum volumes dictated by factories, shipping, clearing old stock and the cost of covering warranty these risks all carry a cost. 
          So look at what happened to CD’s most of the independent knowledgeable retailers have gone, choice has gone this is because they weren’t able source volume like the bigger chains and the market has moved to online (itunes anyone) not a very good example. The 3-4  dominant retailers are the ones to blame for driving prices down and service even lower.

      2. Ian I am sorry though i work in retail and i spend upward of 3 hours with my clients NOT 30 Seconds only for them to purchase products from overseas companies because they may save $50-70 !!! MY PROBLEM …… wasting all my time and doing work for nothing AND on top of this you have them back in your store MONTHS later as the items they ordered online are’t what they ordered or the right colour or don’t fit !!! NOT MY PROBLEM !! 5 times out of 10 these returning customers have to order new products !!! I am with STEPHEN all the way… this continues and YOU WILL HAVE NO STORES TO SHOP IN… AND RETAIL SHOPS WILL BE OF THE PAST AND AND AND …. WE WILL BE WITHOUT JOBS !!! FANTASY LAND I THINK NOT!!!! 

        1. I think you may be slightly over reacting, there will always be a need ffor bricks an mortar shops. A lot of people prefer face to face shopping.( not me personally).
          I remember when the big hardware stores such as Bunnings started appearing, the local small hardware shops didnt disappear as was feared as they have the knowledge and time to spend with customers whereas the people who work in the *big* hardware stores dont have a clue about what they are selling. To this day I shop at my local hardware store even though there prices may be slightly more than the major hardware retailers. The service you get there is priceless.
          Bricks and mortar shops if they give good service will survive.

    2. I do agree. Imagine all retail stores close, customers won’t know what they are actually buying and online cartels will start jacking up prices….. Then if there is an issue with the product , them the customer is up a faceless company and goodluck sorting the issue.

  7. Your article just proved exactly what I thought. There is no clear answer to the question “should I buy online or in a store?” Each purchase you make is different, and I think the main thing to remember is it is YOUR money, you choose how and where you spend it.

  8. I recently bought Nero 10 Multimedia Suite overseas, taking advantage of the good exchange rate ( and even better online competition for my hard earned dollars). Paid $40, including albeit slow postage, rather than the $150 in the local store. Software is ideal for online purchase, sturdy, small and light. Product reviews on the web are more useful than sales assistants who are not in a position to provide advice or demonstration.

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