Over the past year, more and more Australian shoppers have confirmed what they instinctively always knew; that the goods they crave often cost far less overseas, particularly in the United States. The buying power of our strong local currency, and the price transparency afforded by the internet have only served to accelerate the learning curve. And those few shoppers who haven’t discovered the facts for themselves have been alerted by a plethora of media reports.

As part of their recent submission to the Productivity Commission’s retail inquiry, Choice Magazine pointed to a pair of Nike running shoes, which cost $240 at a major Australian sports retailer, and just $134 from an online store in the States. Choice also highlighted the price discrepancy apparent through Apple, where the top 12 albums cost 73% more if purchased from the Australian iTunes rather than the US version of the site. (Canny consumers are finding a way around this restriction, by buying US iTunes cards through EBay, or an enterprising Victorian-based website called Price USA.)

Last month, The Australia Institute released a report called “The Rise and Rise of Online Retail” which says that “an online shopper can save up to half the cost by buying from overseas websites.” The report shows that when you compare the US to Australia, a Sony Bravia 40” TV is half the price in the States, CD’s at least 50% cheaper, an iMac 26% less, and a Dura Ace bicycle “groupset” (a package with drive-chain, brakes, gears etc.) also up to half the cost.

So local shoppers could be excused for asking; “have Aussie retailers been ripping us off?”

For the record (and to avoid a public lynching) I don’t think so. But perception is reality, as they say. And there are some structural inhibitors inherent in Australian retailing which contribute to the relatively steep prices of manufactured goods here.

The Australia Institute report states that, in addition to the GST, there are four factors (and I quote):

1. Differences in labour costs

2. Differences in retail rents

3. Higher quality after sales service

4. Higher profit margins

The report goes on to say that while consumers polled thought that a “fair” mark-up from wholesale to retail should be around 35%, actual average mark-ups are 65%. Some of that mark-up is there to compensate for the first three points above, and in particular staff and occupancy costs which are often up to double the rates in the US. There are other constraints too, such as parallel importation restrictions for book retailers like Dymocks*, and limitations in choice of global suppliers.

But, for all that, perhaps some of the mark-up in the past is because that’s what our market would bear. As economics commentator Ross Gittins wrote recently in the Sydney Morning Herald, “people are willing to pay higher prices in Australia because that’s what they’re used to.”

The challenge we now have is that, whether there is justification for a bigger ticket or not (and whether the lack of a GST on overseas internet purchases under $1,000 is equitable), there will be massive pressure on local retailers to reduce prices. And we can’t keep trotting out the old argument that “this is a smaller market”. Shoppers don’t care anymore.

Where will it all end? In a video accompanying the Gittins article, he forecasts that because the internet has shattered international borders, “what we’re going to see is prices around the world falling to roughly the same level.”

One world. One price. One big headache for Australian retailers. And some major thinking ahead for merchants, landlords, legislators and suppliers alike.

Jon Bird is CEO of specialist retail marketing agency IdeaWorks (www.ideaworks.com.au). Email jon.bird@ideaworks.com.au. For more retail insights and inspiration, visit www.newretailblog.com.