ABC Nightlife

4 Comments

1. 

   Brett Edgerton
   April 13, 2018 at 11:42 am:

   The following is perhaps more a “weekend read”, but I think this really needs to begin to be dealt with…

   The more important issue around retailing in Australia, in my opinion, is the impact of the throw-away society on the environment, especially in relation to medium to large-sized (household) goods.

   Here’s a question: When you last shopped for a household white good, what was the expected life of the product according to the salesman? And did the short time period shock you?

   There is no way in the world that the price of goods sold represent their true cost, including importantly impacts on the environment in their production, use and/or disposal. Star ratings may be an attempt at addressing the middle point, but I don’t believe the other – probably more important issues – have really begun to be addressed.

   This is something that I have been reflecting on following a couple of recent events.

   Recently I took advantage of an in-home installation offer while purchasing a built in closet from a major global retailer. Near the end of the installation the installer told me there was a minor defect – a small scratch on the door – and that I would be within my rights to reject the product and have a new one delivered. And, as we all know, because these goods are flat-packed and sent from overseas, this would mean taking away the whole closet and bringing back an entire new one. Being fairly pragmatic (after all it was for my sons and they could easily do at least that much damage to it that very afternoon), but more importantly not wishing to add to waste, I declined to do that.

   As he completed the job he proceeded to tell me just how many items arrive with defects that are rejected – one example was someone rejecting 3 sofas (including one that was completely busted) before getting “a good one” !

   At the price that these goods are sold, and while I accept that some of these “defective” goods end up in scratch and dent sales or are sold/given to friends, at least I sincerely hope so, I think it highly unlikely that the goods are shipped back to be either repaired or at least repackaged and re-exported. One can only assume that much of these new goods end up being dumped.

   “When I was a young lad”, if you could not afford a leather lounge you bought a vinyl one. Sure they did not breath – and being a poor student in Townsville I certainly understood what that meant! But at least they lasted for years!

   Now it seems that “PU leather” is the cheaper alternative to leather. When we bought our last lounge (from a different retailer than mentioned above), not wishing to pay for our “forever lounge suite” having young children (still with a penchant for Niko pen art), we opted for “PU leather” over the real stuff.

   Almost to the day on 2 years, once the “warranty” had expired, we noticed fine cracking all over. And within months this thing flaked down to the underlying fabric mesh over most of it. (We also bought an office chair and an ottoman in “PU leather” around the same time which have done exactly the same thing). It’s gross – the flakes stick to your skin and clothes, and build up like confetti around the offending and offensive piece.

   I sent an email to the retailer of the lounge with photographs and asked them to contact me to discuss what could be done. They did so fairly promptly and it was quickly determined that we were outside of their warranty period. I replied that I was aware that ACCC regulations make it clear that warranty periods are largely irrelevant, and after further discussion they offered a 50% store credit. I replied that wasn’t good enough and that I would send them the link to my Youtube video clip of our experience, once I uploaded it, to give them first right of reply. At that point the representative said they would have the manager call me. The representative called back shortly afterwards offering a full store credit which I accepted (even though I would have preferred a refund to purchase elsewhere).

   The point of all of this is that the business models of these manufacturers and retailers MUST allow for all of this transit damage and product failure in their pricing. (As well as the annoyance to the customers at the poor quality of the product being sold and the inconvenience.)

   And we all know the number of goods that fail on us often due to rather small issues well before the product life of most of the other components have expired. These goods are often unrepairable because parts are unavailable or, in rare cases when they are available, the costs of repair are uneconomic compared to buying an entirely new good. Over recent years people have tended to replace rather than working at, and perhaps accepting a little inconvenience, extracting as much life from them as possible. (As a parent I would proffer as an example backyard trampolines where I have seen on many instances plastic components of the safety net breaking well before the utility of the trampoline has expired, but, unable to buy replacement parts, unwilling to persevere and develop work arounds, and with replacement cost of a cheap trampoline only a couple of hundred dollars, they are thrown out within just 2 or 3 years.)

   While handy-minded people sifting through curb-side offerings and recycling programs might reduce this waste somewhat, much of these materials end up in land fill prematurely (or the metals recycled) often when 90% of the parts in the goods have significant useful life left in them (and are worth more than their elemental value which requires more energy to process).

   Part of this is undoubtedly due to China encouraging over capacity in all forms of production (to meet their own internal growth targets). But I have little sympathy for retailers for not being able to compete with Chinese businesses selling directly because they have embraced these cheap suppliers for years. All that has changed is that first wholesalers were cut out by businesses going direct (via trade shows and then Alibaba and the like), and now the local retailers are being cut out.

   What I believe firmly has to be the future, and this is where I do have something a little constructive to say about Trump, and it would be the saviour of local retailers with the right mindset, is that prices of goods do need to start to reflect their genuine costs to human beings as a whole. Perhaps that can be done by tariffs, but I think it would be preferable if it were explicitly called an anti-waste or environmental tax. (I realise that this is certainly not Trump’s aim – but it is interesting his first target for tariffs were white goods and solar panels – and if a reduction in the sale in the US of low-quality, short-lived products were an unintended consequence of his actions then that would be something!)

   There needs to be pricing signals embedded in the costs of all goods that reflect the genuine full cost of goods. I simply can’t see how goods manufactured overseas from resources gathered in various geographies, and shipped to Australia (all along burning fossil fuels) can retail at these prices at a profit (with all of the local costs) after allowing for a replacement rate of say 50%.

   If the genuine full cost of goods became embedded in the pricing then I strongly believe the concept of food miles would quickly expand to all goods (once again) and be a major competitive factor.

   If I were the entrepreneurial type I would be going flat tack on this right now, opening for example small furniture shops where the furniture is made very locally and customers know that whenever the piece should break – be it accidentally during setup or in 10 years – it can be repaired promptly and at reasonable cost. Sadly this type of service tends to be marketed as a premium-type of service and thus is expensive. But the premium level can be built in based on the desirability of the materials used (eg. type of timber and fabrics), not the longevity of its components and construction, to allow for different pricing points.

   Further complicating customers assessment of quality is an understanding that the marketing budget spent on the product or branding (of producer or retailer) is often more correlated to the retail price rather than its actual quality.

   Moreover, it has long been postulated that even some high quality goods are intentionally and programmatically made to function less well or even become defunct after a specified period. This is often referred to as “planned obsolescence” and may be used to drive more frequent turnover of a product and therefore increase sales. Evidence of such behaviour should be treated very dimly indeed by national and perhaps international authorities.

   I do not pretend to have all of the answers – of course I am abundantly aware that I have few of the answers. But the problem is plain for all to see.

   Moreover I wish to be clear that I am in no way suggesting that all imported products are poor in quality, and all locally produced products (currently or in the future) are necessarily of higher quality. The progress towards producing higher quality products, with greater reliability and better technology, as national economies develop and manufacturing capabilities improve is well understood.

   Essentially there needs to be disincentives for retailers to sell, or for customers to purchase, products which are likely to have short working lives compared to the resources that went into making them or to the true full cost of their disposal.

   In many instances this may well lead to a renaissance in local manufacturing and this would mean that the customer is dealing once again with retailers who will genuinely stand behind their product because it actually is their product! (As used to be the case before transport allowed increasingly wider distributions of goods.) And regardless of your budget you can access this level of service because pricing signals have been altered such that retailers of lesser quality goods do not have a price advantage and the competition would require them to also stand behind their products irrespective of their origin.

   Undoubtedly this would lead to increased inflation during a prolonged adjustment phase. But I just can’t see how the world can afford this level of waste and its consequent damage to the environment. (I always think of the movie “Wall-E” when I reflect on this, with piles of rubbish taller than sky-scrapers.)

   If this type of restructuring were undertaken genuinely and comprehensively, then absolutely I would support taxing of (some, or even all) goods purchased directly from overseas suppliers by end customers if it were necessary to prevent circumvention of these anti-waste measures.

   I think most Australians have to know in their heart of hearts that we have been underpaying for a whole range of goods. We all manage to avoid confronting this reality, except on the rare occasion when we are reminded by, for example, a building collapse in a developing country where, it emerges, was housed a business (often employing very young people) exporting cheap goods to Australian companies or companies retailing to Australians. Even those of us that feel guilty about it are relatively powerless to do anything about it or even to become better informed.

   Clearly international and/or supra-national authority involvement is what is needed to genuinely address these issues.

   Moreover, while I have a lot of time for the benefits of unions – and I consider it a sad state of affairs that our Reserve Bank Governor has become the loudest voice arguing for salary increases due to increasing impotence of labor unions – I do have concerns about them talking about disparities in safety standards between our wealthy nation and developing countries. Given their membership is Australian workers, I do not think they are calling for improved working conditions for the benefit of people in the developing countries. And it would be unrealistic for people to work in pristinely safe factories and walk out the gate dodging potholes and innumerable hazards to return to their shanties. (I think most people will be familiar with the footage of children scrambling over moving piles of rubbish and dodging bulldozers in a race to get hold of resources that may be of some value and benefit to improving the lot of themselves and/or their family.)

   If we want the world to become a fairer and more equal place then we need people in poor countries to have a chance to benefit from accessing wealth from rich countries by as many mechanisms as possibly. Moreover, again the link between population growth and economic development of a regions is very well understood.

   This is my major concern about the policy adjustments I propose above. However, I find it difficult to believe that it would be impossible to make these adjustments within the broader context of genuinely working towards a better world for all human beings.

   When it comes down to it, I am a globalist and I am always sceptical about campaigns to protect local environments and peoples (above others). Two precepts explain my views best, the “butterfly effect” (if a butterfly flaps it’s wings in the Amazon …. ) and the following quote from Franklin D Roosevelt’s Fourth Inaugural Address on 20 January 1945:
   “We have learned that we cannot live alone, at peace; that our own well-being is dependent on the well-being of nations far away. We have learned that we must live as men, and not as ostriches nor as dogs in the manger. We have learned to be citizens of the world, members of the human community”

   (Why I similarly have deep scepticism towards those who wish to argue for enforcing a population limit for Australia.)

   But there is no doubt that we need to urgently work towards making human progress on this globe sustainable, and when done in the context of caring equally for all human beings irrespective of where we live or were born, then that will really be something of which we all can be proud.

   In fact, I believe a “Roosevelt clause” should be inserted into the oath of all those in Public Office from and for all nations that acknowledges that to do their best for their constituents they must always, and above all else, act as “citizens of the world; members of the human community”.

   As a postscript, I should probably make it crystal clear that, given I mentioned Gerry in my initial post, none of the above anecdotes relate to products purchased from Harvey Norman. My main criticism of Gerry is that I think it a bit rich of a guy who was sceptical about the internet from the start, and who has had plenty of time to prepare strategy to deal with its disruption, to keep pressing for tax changes to help compete against the competition it has brought (though he is certainly entitled to his views and everyone else in a position of influence is more than prepared to use it, so is not unique.) In actual fact, I cannot recall a single item that I have bought from Harvey Norman that has disappointed, including my first brand new lounge suite purchased 24 years ago – we still have one chair (and would probably have the entire suite still if we never had kids :) ).

   Furthermore, full respect to the Loweys – I have a lot of admiration for what they have done, and selling out at the top is what all investors hopes to do. I just think, in Roger’s parlance, that they run the risk of being 12 minutes too late. In fact, what is interesting about the information I stated in my initial post is that the Westfield centre to which I was referring is a little unusual in that it is half-owned by a listed property Trust, and this 50% stake is its only asset. As such I would assume that Trust is subject to the ASX’s continual disclosure requirements which would reflect solely on the performance of this one centre. At the last results release by the Trust on 21 February the majority of the store closures had occurred (I think 5 have occurred since then, while 2 or 3 spaces were vacant as early as late November), and so I was expecting to see disclosure on deteriorating asset performance. However, whilst the report stated that Net Property Income decreased 1.7% compared to the same period of the previous year, they stuck to their FY18 forecast (from their FY17 report) for Funds From Operations and distributions to “increase by up to 1%”. The vacancies to which I have been referring are essentially fixed store spaces. What’s more, as someone who has frequented this centre for 15 years it is also very clear that open spaces inside the centre are far less congested than usual due to far fewer kiosks and pop-up stores. Obviously my observations patently show that the performance of this asset has deteriorated markedly, especially since end of January, and it is somewhat surprising to me that this has not been disclosed. My reading of the Business media, and my own observations elsewhere in Brisbane, show that this centre is not unique in exhibiting increasing retail space vacancies. It would be interesting to know where else pressure on retailers is being exhibited in the form of store closures and increased space vacancies.

   • 

     Brett Edgerton
     April 18, 2018 at 2:08 pm:

     I noticed yesterday that Westfield has quietly increased the “rent” on customers (and people working in the centre?) by increasing parking fees… I imagine that they are hoping there is no backlash from shoppers, making their issues worse, and so far the media are “co-operating” (or asleep) seeing as there have been no reports (unlike when they were initially introduced in 2012)… entirely predictable… but it reeks of short-term gain for even more medium/long-term pain…

2. 

   Brett Edgerton
   April 8, 2018 at 12:40 pm:

   Hi Roger,

   Thanks for sharing “squared” (sharing the link, and the info within the link :) )

   I just want to pick up on the discussion about retail. What you said about the global access to specialist retailers is spot on. What’s more, and actually I am surprised that this has not really featured in discussion I have heard on the topic, I think the impacts on general retail are much deeper than many appreciate.

   I noticed several years ago the emergence of items on Ebay that seemed so incredibly cheap, even after postage costs, that it was trivial to “have a go” and purchase accepting that it probably was too good to be true. (In other words, the monetary loss was so trivial it was worth the risk that the item never arrived at all or was completely unusable.) Low and behold, the many products that I have bought in this time have turned up and nearly all have been at least as good as I would have purchased through mall or other brick and mortar retailers.

   For our household this has ramped up in the last 6 months with the “discovery” of Wish (which incidentally is a major sponsor of the LA Lakers). For example, my wife is “known” at her workplace for her shoe collection. In fact, a few weeks back a sharp-dressing and well-informed male colleague held the lift door open to admire her shoes, enquiring “are those Christian Louboutin?” (Here in lies perhaps one weakness of this model – my wife is so discrete about her “thriftiness” that she dare not admit to anyone other than her closest friends about her new-found favourite shopping experience :) ) All of her shoes she has purchased for less than $20 inclusive of postage – and she has even been fully reimbursed for very minor defects (which in no way lessen their appearance or wearability/longevity) on a couple of them. She has also purchased clothing, jewellery and lingerie for what can only be described as ludicrously cheap prices, sometimes free with postage costs of a few dollars! (which translates to incredible value seeing as they have all arrived and have not disappointed in terms of quality).

   I suspect that the impacts of this fast-moving development is the reason why after years of whinging Gerry Harvey (“I don’t think this internet thingy is going to be much at all but I guess we have to do something”) looks like he is going to get his tax on all imported goods!

   But the truth is that, while a $5 tax will double the price on some of these goods, when retailers have to pay mall owners tens of thousands of dollars each month in rent to have the space to retail what can be purchased directly from China for as little as 10-20% of the price, I doubt it will have a noticeable or enduring impact. (But it will annoy the general populace – and one has to wonder just how much flack is Mr Turnbull prepared to take on taxes for the business community… then again I strongly suspect many large businesses are “over-employing” as a down-payment on those tax cuts, eg. my local Bunnings!)

   And these developments, I believe, is why Mr Lowey is pretty keen to get his sale off as soon as possible. Certainly the strains of this retail competition in combination with an over-leveraged “consumer” (afterall we aren’t people any more) are obvious to anybody walking around my local Westfield which is one of the largest in Brisbane! Yet another shop closure this past week, making around 15 closed with 13 or so closed since end of January. (It’s been rather humorous to watch their creativity at disguising just how many spaces are now vacant.) But on a serious note, it surely has not escaped the attention of most people employed in the centre and unfortunately I have seen nothing to dissuade me of my prediction of 4 months ago (on this site) that my region is heading toward recession, if not already in recession, as a consequence of over-indebtedness (due mostly to real estate speculation). What’s more I think it likely a forerunner of what will be seen throughout the country as particularly Sydney and Melbourne begin to digest the consequences of the extreme run-up in property prices over recent years from already lofty levels.

   • 

     Brett Edgerton
     April 10, 2018 at 2:21 pm:

     Make that two more closures this past week – just noticed another store with boarding, this time covered in advertising for the neighbouring store, but enquiries within revealed that store is not expanding into the vacant space (so an attempt to reduce the proliferation of the black boarding reading “another exciting retailer opening here soon”) … retailers remaining in the centre – many with signs indicating major discounting – must be negotiating very hard indeed for rent reductions …