COMMENT: A major row has broken out over who is ripping off who in the consumer electronics industry following yesterday’s launch of the new Windows 7 operating system which is up to $200 more than the same product in the USA.
Microsoft is blaming retailers, like Dick Smith, JB Hi Fi and Harvey Norman for the massive price hike which comes as the Australian dollar climbs to almost parity with the US dollar. This morning the dollar is trading at $0.92 a 38% jump on where it was at 3 months ago. Yet despite this several vendors and distributors in the consumer electronics market are price gouging Australian consumers.
In many cases their actions are supported by overseas subsidiaries that are desperately looking for profits ashome markets like Europe, the UK and the USA slump.
One vendor Sonos has decided to cut costs by up to 25% but others are simply taking advantage of the situation. One vendor in particular is Sony who has been price gouging consumers in Australia for years.
But they are not alone Yamaha is currently charging 63% more for a receiver in Australia than the US, Samsung 20% extra for their TV’s, Pioneer 59% for their Car CD receivers while distributors like Audio Dynamic have a recommended retail price on their GenevaSound iPod dock of $3,999 when it is selling in the USA for $1,999.
An investigation by ChannelNews reveals that in some cases vendors are being held to ransom by mass retailers, with the likes of JB Hi Fi who reported a 45% jump in profits this month and Harvey Norman who demand massive margins, rebates and marketing support compared to US retailers.
They also refuse to stock products unless they are getting high margins and marketing rebates. Ironically one of the few Companies who refuse to pander to retailer demands is Apple who tell retailers the terms in a take or leave it attitude to their highly popular iPods, iPhones and MAC notebooks.
One such retailer who has felt the Apple blowtorch is Telstra, who makes very little margin selling an Apple iPhone which is why they prefer to push Windows Mobile based phones, this allows them to remove wireless downloads and run the Telstra developed software as the opening Window.
Apple demands no Telstra software and wireless for all their iPhones sold by Telstra.
Vendor’s that we have spoken to claim that the mass retailers are forcing vendors to spend millions on catalogue and TV advertising for their products as well as at special retailer events. For example Harvey Norman does not pay a cent for advertising despite them being credited with being Australia’s largest TV advertiser.
Instead they buy the advertising space from the TV station at one price and then on sell it to vendors at a dramatically inflated price which is why they make a big profit from selling advertising space to vendors who are forced to pass on the cost in their product costing in Australia.
The retailers are also demanding and getting a margin of up to 18% and an additional sell through margin of up to 25% again this is passed onto consumers in Australia.
In the USA with a major chain like Best Buy, vendors are paying margins between 12% and 20%. They also don’t demand the marketing margins that Australian retailers demand.
For example small image and copy space in a Harvey Norman, Dick Smith or JB Hi Fi catalogue can cost a vendor between $15,000 and $25,000. All this is then passed onto consumers by a combination of vendor and retail pricing.
When David McLean the Channel Manager at Microsoft was asked about the high cost of the Windows OS in Australia at yesterday’s Windows 7 press conference he blamed retailers for the cost and he is right.
The price of Windows 7 in the US and UK is consistently cheaper than in Australia despite the latest currency conversion rates.
Recently the Chief Economist at CommSec criticised the pricing of consumer electronic goods in Australia when compared with the cost of the same goods in the USA.
He claims that in recent months the rise in the value of the Australian dollar Vs the US dollar, which is used by most vendors to purchase their goods from overseas, should have led to significant price cut but in most cases it hasn’t this is despite the Australian gaining 38% in value Vs the US dollar.
As a result James Craig the Chief Economist at CommSec is urging Australian’s to start buying goods overseas which in the past has been difficult because of restrictions on the shipping of goods to Australia and the acceptance of an Australian credit card.
However this is changing as US and UK online start chasing business from Australia because of our strong economy Vs their own. A classic example is Amazon.com who is now selling the Kindle reader and other related CE goods into Australia.
For some vendors and in particular distributors the 38% rise in the value of the Australia is an opportunity to price gouge. However some vendors are under the gun from retailers who have demanded vendors hold their margins so that they can take higher profits.
Earlier this year David Ackery from Harvey Norman complained about margins and demanded higher profit margins as opposed to products being lowered in line with the rising dollar which should have led to price cuts across the board of at least 25%.
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