Harvey Says Australia Is Late on Online Retail Threat

Australia’s inquiry into the retail industry is “too late” to stop some retailers going out of business due to competition from offshore websites, said Gerry Harvey, executive chairman of Harvey Norman Holdings Ltd.

The government doesn’t appreciate the urgency of the threat facing domestic retailers from overseas-based rivals making use of the Internet, Harvey said in a telephone interview today. Harvey Norman is Australia’s largest furniture and electrical retailer.

“You’ve got every second person in the country importing things from overseas, evading duty, not paying sales tax,” Harvey said. “It’s gaining momentum at a rapid rate. Rather than clip it in the bud, they’ll end up doing something about it, but it will be too late. You’ve got an awful lot of retailers that are going to be going broke after Christmas.”

Prime Minister Julia Gillard’s government today announced an inquiry into the impact of globalization on the retail industry, which includes looking at growth in online purchases from abroad by consumers.

The Productivity Commission will report its findings in 2011 as the government seeks to safeguard the future of the A$242 billion ($239 billion) industry, Assistant Treasurer Bill Shorten said today in an e-mailed statement.

The Commission will also start a “compliance campaign” to ensure sales taxes and customs duty concessions on imports aren’t being exploited, Minister for Home Affairs Brendan O’Connor said in the statement.

Online Competitors

“There’s a lot of momentum, through word of mouth, about internet sales giving people the chance to access a discount,” said Angus Gluskie, who manages about $350 million at White Funds Management Pty in Sydney. “It’s a loophole right around the world.”

Harvey said a major concern is that overseas online competitors are able to avoid Australia’s goods and services taxes.

“You can’t have a situation where a bloke sets up a retail shop in Australia and sells stuff and has to pay GST, and then some bloke sets up in America and he doesn’t,” he said. “And the bloke who sets up his shop in Australia employs people, pays rent, and these sorts of things. That’s just not on.”

Australian Dollar

The threat to Australian retailers has been exacerbated by the strengthening Australia dollar, which has increased the spending power of consumers shopping overseas.

Australia’s currency has advanced 18 percent since the end of June, the most of 16 major currencies tracked by Bloomberg, reaching parity with the U.S. dollar in October for the first time since July 1982.

White Funds’ Gluskie said the danger to Australian retailers was sometimes exaggerated.

“The underlying drivers of retail spending are very good going into next year,” he said by telephone, adding that the high Australian dollar was an extraneous factor that had made things seem worse.

Harvey said that an alliance of retailers had been formed to press their case. The group includes Westfield Group (WDC), the world’s largest owner of shopping centers, and Myers Holdings Ltd. (MYR), Australia’s biggest department store chain, the Weekend Australian reported today.

Advertising Campaign

The report said the alliance was planning newspaper and television ads similar to those used by the mining industry against a resources tax, which played a part in toppling former Labor Prime Minister Kevin Rudd.

A separate article in the Weekend Australian today said mining companies are planning a new wave of ads against the government, believing they were misled over the so-called mineral resources rent tax that replaced Rudd’s earlier version of the levy.

“All certain people are doing at the moment is joining together to try and figure out what to do,” Harvey said. “If that means mounting an advertising campaign at the same time as the miners are going to do theirs or whatever, certainly if the government’s faced with a double onslaught like that, and the slightest little thing happens out there, see you later government.”

Harvey said Harvey Norman has also considered setting up websites overseas to avoid some domestic taxes.

“The problem is, we’ll spend the money putting it all together and by the time we’ve done it, the government will close us down.” He said the trend towards shopping on overseas websites affects furniture retailers like Harvey Norman less than others that sell products such as bicycles, clothing and watches.

To contact the reporter on this story: Shani Raja in Sydney at sraja4@bloomberg.net

To contact the editor responsible for this story: Paul Tighe at ptighe@bloomberg.net

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