Amazon is coming

  • News
  • December 15, 2017
  • Greg Harford
Amazon is coming

If there's one word that strikes fear into the heart of many Kiwi retailers, it's "Amazon". This massive global business has enormous scale; a turnover nearly two and a half times that of the entire New Zealand retail sector; and a share price of nearly NZD$1,400. 

The company's moving into Australia - reportedly having announced that it will "destroy Australian retail"; and is expected to be up and running with a distribution centre in Victoria by the time you read this article.

There's a lot of discussion in the retail community about Amazon's arrival across the ditch, and about what it will mean for the New Zealand market. There's no doubt that its foray downunder will have big impacts here in the long-term, but the reality is that Amazon's scale means it can access prices that Kiwi firms can only dream of; it is already competing in the New Zealand market; and Kiwi customers are already shopping there.

The physical arrival of Amazon in Australia won't change these fundamentals - but it is likely to make it easier, quicker and cheaper for Amazon to get goods delivered into New Zealand.  This makes it even more important for Kiwi retailers to be at the top of their game, providing fantastic service for customers, building an unforgettable in-store and online customer experience, and to build customer loyalty.

But we know it's hard. The brutal truth is that, as the tentacles of Amazon extend further, there will likely be casualties amongst New Zealand retailers. This will mean some businesses close, some jobs will be lost, and some town centres in heartland New Zealand may lose their soul.

The situation is not helped by the fact that the New Zealand Government has, over a long period, consistently failed to create a level playing field for New Zealand retailers. Foreign websites can sell most goods to New Zealanders without paying a cent in GST or duty. This is like a reverse tariff - meaning that Kiwi businesses have an automatic and significant price disadvantage. Kiwi firms have to charge their customers more - simply because of Government tax policy.

At Retail NZ, we think it's simply outrageous that the New Zealand Government penalises Kiwi businesses that employ New Zealanders and keep our towns alive just because they are in the retail sector.

No other sector of the economy faces a systemic commercial disadvantage as a result of Government inaction. Indeed, in other sectors, our Government has tried hard to make sure that there's a level playing field. In the case of the sexy film production sector, it even offers massive incentives and subsidies - despite the fact that retail is a bigger export earner for the country than film.

But, despite the fact that retailers account for $83 billion in economic turnover (including $4.4 in export revenue), and employs 209,000 people (that's more than 10 per cent of all workers) the Government continues to treat the retail sector as a poor cousin to other parts of the economy.

Across the ditch, the Australian Government has moved to introduce a level playing field. From 1 July 2018, anyone selling more than A$75,000 of goods into Australia needs to register for GST, and pay the Commonwealth Government for every sale. For Kiwi firms, the ultimate indignity, is that an Auckland retailer exporting to Australia now has to pay Australian GST to the Canberra Government, while an Aussie firm selling to a customer in Christchurch can get away without paying its share of tax.

The even bigger absurdity is that tax changes last year mean that the likes of Amazon do have to pay GST when they sell an e-book or a music download, but not if they sell a physical book or a CD. Frankly, it's nuts.

The present situation is not sustainable for the retail sector - but it's also not good for the Government. It's currently missing out on at least $235 million a year in GST revenue (not counting duty) and this will rise to $935 million every year within the next decade.

There is an easy solution - and that is to follow the Australian lead. Everyone selling into New Zealand should be required to register for GST if they would need to register for GST domestically (that is, if they do more than $60,000 of sales in New Zealand). They then would then be required to account for GST and pay it to the Government in the same way that domestic firms do.

Is this solution perfect? No. But as 98 percent of purchases by Kiwis are bought from just a handful of foreign websites, it would be pretty close. It would certainly be a vast improvement from the situation now where foreign firms can do business here at the expense of both the Government and domestic retailers.

It's also been shown to work. Within the EU, retailers already have to pay VAT (the European equivalent of GST) at the rate that applies within the destination country. And new rules come into effect in Australia next year.

Retail NZ has already picked this matter up with the new Government, and we'll be lobbying hard for urgent action to put the New Zealand retail sector on a level footing with foreign firms.  We need your help though -  please write to the Prime Minister, and your local MP. Let them know that your business is impacted by this, and that change is urgent.

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