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.
When to buy at the shops
For us, the equation is pretty simple. If you’re buying something big and very expensive, and you know a shop where they’re prepared to ‘do a deal’, by all means buy it in the flesh.
The quality assurance on CE these days is very good. We can’t remember the last time we had a product that was ‘dead on arrival’, or dysfunctional out of the box. But it does happen. If it’s your brand new telly, it’s much easier to haul it back to the retailer and ask for a replacement out of the warehouse. A big store won’t care – your broken one goes on the pile, and they process all the faulty stock once a month.
Small online retailers hate returns. For them, their low-margin businesses completely rely on handing the thing to a courier and never seeing it again. A faulty device means a terse email conversation, you having to organise a courier pickup, and then an anxious and possibly ultimately litigious wait to get a working TV back.
The really big issue with shopping at a store though is the range of products offered. Volume sales means these guys only want to stock products they know will sell. So if you see the latest slightly-different-but-just-right-for-you media server with wireless and HDMI, odds are your local emporium won’t have it, because they think only AV freaks like you will buy it, and there just aren’t enough freaks for it to work as regular stock.
It can also be harder to get discounts on rare and unusual items like this, because the retailers themselves don’t have the same kinds of relationships with the suppliers.
When to buy online
If you’re talking about smaller products that come in a sealed box, like cameras, music players, even notebook PCs, then online is the place to shop.
For online retailers, these small items are easy to handle. They don’t need special warehousing, they can just stack up in a spare room. Here’s where you’ll find ‘free shipping’ options, and the savings can be substantial.
What’s more, online retailers (at least the good ones) will understand the power of Google, and because they can write “ships in 3-4 business days” on their site, they don’t have to keep unusual items on hand.
So when you order the audiophile MP3 player or a geek phone like the Google Nexus S, the online retailer just places an order of their own with the supplier, so your sale is just another bit of cashflow. That means low prices, and it means getting the product you want.
Of course you have to wait for it. That’s the only major disadvantage. You have to decide for yourself how much delayed gratification is worth.
When to buy overseas
It seems a no-brainer to just get all your stuff direct from the US, since the dollar is so high. People rant and wail about how it’s ridiculous how something in North America will cost $US499 but retail here for $AU700. Well guess what: we live at the end of the earth, girt by quite a lot of sea, the exchange rate has only recently reached parity, and you’ll be surprised how quickly the ‘missing’ $200 can reappear in shipping costs.
Packages with a value higher than $1000 attract GST and shipping duties: what, should the guys unloading the ships work for free? If you really want to pay $299 for an iPod Touch 32GB instead of $378, you can move to the US. But we’re guessing that’s going to cost more than $78. Especially since many retailers sell it for $349.
Buying overseas often makes sense when new products are announced. Apple is again an exception, but it can often take months or even a year for products to appear in Australian stores. Especially games and games consoles. Unfortunately, you’ll probably end up paying more for the privilege of getting it early.
Impatience costs money
At the end of the day, what this online-versus-high-street debate comes down to is impatience. If you’re the kind of shopper who wants a product now, that’s going to cost you. Want a new TV today? Shop at Harvey Norman or Bing Lee and pay a few hundred bucks more. Want the Nintendo 3DS before all your friends get it at Toys R Us? Pay $50–100 more to get it shipped from Japan via priority courier.
The thrifty shopper will research, and won’t say things like “I only buy online”. Depending on the product, depending on where it is in its lifecycle, depending on how close to getting commission the salesman is, all these things factor in to getting the best price.
Both kinds of shopping remain fun, and we think the world would be a poorer place if either disappeared, or either was subject to unwieldy new-age protectionism. Shops need to offer better range and real beyond-the-box service. Online needs to provide better after-sales support. Meanwhile, keep shopping! It’s good for the economy – or so the retailers association tells us!
Credit when credit is due
One of the great paradoxes of online shopping is that people still say “I don’t like giving my credit card details online”. Thing is though, online shopping via card is much safer than, say, direct deposit from your main bank account.
Yes, the Russian Mafia can get a hold of your details and go on a spree. But you know what? Banks anticipate that. When this writer goes crazy at Christmas and makes six purchases in two hours from four different stores, he gets a call from ANZ. They’re just checking everything is okay.
Credit cards are also great for cash-flow. Many offer an “interest free” period, which means you won’t be charged interest for, in some cases, up to 60 days. If you pay off your card at the end of the month, the only costs you’ll pay are the annual membership fee and interest on any balance that carries over from the previous month.
If you’re making a big purchase, say a new entertainment package worth $5000, consider getting a personal loan from your bank. If you’re employed, odds are they’ll finance the loan, and while the repayments will be higher than the minimum repayment on a credit card, the interest rate is usually 5-10 percent lower.
PayPal is also a good method for paying online. It’s a broker between you and the seller, so the dodgy guy on eBay offering a new Sony Vaio Z-series for $400 can’t make off with your cash when he sends you a box full of cut-up phone directories.
Credit needs to be used sensibly and judiciously though. Remember, the banks ain’t giving you $10K of cash because they like you. They want you to max out the card quickly and then repay the minimum amounts – that maximises their profits. The risk they take is you being good with money and only spending what you can afford, and never leaving a balance on the card. Then the joke’s on them. And also the retailers who have to pay a clip to the bank every time a card gets swiped.
And have you had a go with the contactless system yet, like Visa PayWave? That thing is witchcraft…
The value of the demo
Look, we don’t want to be judged as hugely cynical here, but one of the arguments for buying at a bricks-and-mortar store is that they can demo the product to you.
Well, putting aside questions of whether your TV will look, in your home, anything like it does in a wall of nearly identical TVs, consider this:
Why not go to the store, get the demo, and then just go off and buy the product online anyway? And don’t forget: for every one demo you get in non-ideal circumstances at the shop, there are hundreds of online reviews, both written and video, for you to get some kind of collective idea of how good the thing is.
Oh yeah: none of what we’re saying applies to $10,000+ audiophile equipment. You’re not going to get a discount online for that stuff anyway, and auditions are vital because expensive amps look the same on paper but sure don’t sound the same.