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.