Tim Richardson

Melbourne, Australia

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AUD approaches parity: what it means for online retail in Australia

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The Australian dollar is getting very close to parity with the USD. The USD is not the only currency of interest to Australians, but the strengthening of the AUD is apparent when looking at other currencies.

AUDUSD_20101008

The simple message is:

Exporters and local manufacturers are under pressure; importers should benefit.

Exporters and local manufacturers are under pressure where there is an substitute or competing offer.

Australian consumers will find their AUD goes further. But what effect will this currency appreciation have on online vs traditional retailing? I think the effect will be quite strong.

An imported product sold in a traditional retail outlet has a lot more AUD input cost than a product an Australian consumer buys online from an Australian website (lower overheads), and almost no AUD input if bought from an overseas website.

A product sourced in shelf-ready packaging from China that costs $1 ex-factory will end up on your supermarket shelf for about $5, typically.

Consider that nearly all of the $4 difference is Australian dollar costs: GST, wages, rent, domestic transport, advertising and covering interest and shareholder payments: these are big chunks of costs for the Australian retailer and importer (this is also why the loss of manufacturing jobs in Australian is not as devastating to the economy as it may seem: there is a lot of Australian added-value regardless of where something is made). The 80% of the cost price denominated in AUD won't change much because the AUD gets stronger. Possibly the inflation pressures which are linked to the same fundamentals behind the high AUD will even make these costs worse (for example, very high employment in Australian may push wages up). If this product can be sourced overseas, the high component of AUD costs starts to make traditional Australian retail look like an Australian manufacturer.

Another factor favouring overseas online retail is GST. A consumer doesn't pay GST when importing items for personal use below the $900 threshold. Shipping costs are cancelled by avoided GST for many items above around $250.

A Hong Kong-based retailer of consumer electronics also has to pay rent, wages etc, but not in AUD. Nearly all of its costs are in HKD, USD or CNY (and HKD and CNY are basically fixed to the USD anyway). So these overheads become less in AUD. The stronger AUD affects nearly the whole price, so the cost price advantage over Australian traditional retail will only grow.


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Last Updated on Thursday, 23 December 2010 20:54