EXCLUSIVE: A move by retailer JB Hi Fi to charge consumer electronics and IT vendors for display floor space has not gone down well with manufacturers, with some observers claiming that vendors are deliberately keeping up the price of goods despite a strong dollar in an effort to pay for retailers’ demands.With Harvey Norman tipped to follow JB Hi Fi’s recent move, several vendors have contacted Channel News to air their views.
According to Scott Browning, the marketing director at JB Hi Fi who recently opened a new store in the heart of the Sydney CBD, the future is a “vendor pay model”.
Several vendors including Canon, Nikon, HP, Dell, Samsung, Acer, Sony and Panasonic are already paying for floor space in the new JB Hi Fi store.
Browning said: “Food vendors have been paying for floor space in Woolworths and Coles for a long time. We should be no different, we are selling consumer electronics and IT and it is important that we work more closely with vendors to demonstrate their innovations,” he said.
“With the exception of Apple, vendors have got to lift their game. They have to work closer with us. Apple is a brand that has decided to entice and engage their customers with great retail stores for what is in essence the sale of a computer. They have set the benchmark for others to follow,” he said.
He claimed that Vendors have to understand that they now have to go beyond their products because their products are communicating with a multitude of devices and services.
A Sony executive told ChannelNews that “the money is simply not there to pay for floor space”.
The executive claimed that retailers are currently demanding and getting margin on the products they sell, incentives for meeting targets and a big slice of the marketing dollar in the form of co-op contributions for TV, retail catalogues and other marketing activities.
Paul Reid, director of consumer products at Panasonic Australia, said: “They can ask but they are not necessarily going to get what they want. All consumer electronics vendors are struggling to make a profit currently, and to having to pay for floor space on top of what we currently pay retailers is not going to work”.
An executive from HP said: “Harvey Norman tried this several years ago and it failed. It will not work a second time round because margins are not there and neither is the volume to support more marketing dollars going to a retailer. We already pay them enough in margins and rebates”.
Reid said “Retailers are already taking a big chunk of our marketing dollars”.
Several distributors that ChannelNews spoke to said that they feared speaking out, however the CEO of one leading distributor who sells products via both JB Hi Fi and Harvey Norman said: “We have gone along at this stage with JB Hi Fi’s request but it is not sustainable across multiple retailers and multiple stores. We have deliberately not passed on currency savings because we know that we are going to have to fund additional marketing demands by retailers”.
“The problem that retailers face is that consumers are not stupid they are shopping online and we are starting to see a massive price difference between products online, overseas, and what retailers in Australia are charging for the same product. In some cases the price difference is as much as 50 percent”, they said.
Recently Crikey conducted a comparison pricing exercise between the price of goods in Australia via retailers and the price that they could buy the same goods for online.
Pentax lenses costing nearly $850 locally are available for US$510 from a US site.
High-end audio equipment costs three times as much here as overseas.
An LG refrigerator costing $2500 at Harvey Norman was selling in the US for $1,404. A Sharp microwave costing $199 at Harvey Norman is US$85 from Amazon and US$74 at Walmart.
Crikey said that the standard line from Australian retailers is that these price differentials are driven by the high cost of operating retail outlets in Australia, that they face high rent costs not faced by online retailers overseas, and they have to pay higher wages than US retailers.
That, however, doesn’t explain the differential in prices in niche products with minimal retail footprint like high-end audio.
This “international price differentiation” is one of the issues under investigation by the Productivity Commission in its review of the retail industry. Katrina Lee, strategic policy adviser for Choice, says they want to see the PC inquiry focus more on the problems faced by consumers.
“The question is why bricks and mortar retailers can’t keep up and compete with online competitors,” she said. “Australians do want to buy locally, and there are successful local online retailers, both bricks-and-mortar operations and pure-play online operations. But the large retailers have relied on bricks-and-mortar outlets and offer limited sites and consumers are sick of it,” she said.