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Will the new GST law even the playing field for Kiwi retailers?

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Byron McLean

Jan 29, 2020

In today’s digital world, it’s not easy being a mom-and-pop shop. For these small businesses, competing with big international retailers is an uphill battle. Not only do they have big budgets for flashy experiential retail stores and optimised online stores, they have the resources to target their customers on several platforms.

For consumers, it’s hard to beat the shopping choice offered by these large retailers. People may want to do the right thing and buy locally. However, it must deliver value, convenience and experience for them to do so.  

Who’s actually shopping local?

Xero recently conducted a survey about attitudes towards shopping locally in New Zealand. We found while more than half of Kiwis (53.5%) would prefer to buy from New Zealand stores, only a third are actually shopping locally more than half the time. 

In December last year, the New Zealand government introduced a law change in an effort to even the playing field between local and international retailers. Overseas businesses selling goods under NZ$1,000 to Kiwi consumers are now required to charge a Goods and Services Tax (GST) of 15%.

The tax raised from GST for Netflix alone has reportedly raised $130m in revenue for the New Zealand government to spend on services and programmes that support citizens and businesses. The tax revenue from GST being applied to purchases from Amazon is estimated to raise $100m in just its first year. 

With this additional cost, shoppers have less of a financial incentive to buy products from outside New Zealand. But does that translate to shopping behaviour?

In our research, we found cost seems to be the biggest barrier. Most (69%) Kiwis aren’t willing to pay more than 5% more for local products over international. But with 15% GST now added to overseas purchases, shoppers are likely to think twice before going straight to the big international online stores.

For me, this has influenced my consideration for what products I’m buying. Now, I’ll investigate whether I can purchase the same product locally for the same price. I’ll also weigh up if I should be looking at a different product all together. Even in instances where the international retailer isn’t directly collecting the GST at check out. You may send it to a service like NZ Post’s YouShop to be forwarded on to an NZ address. You now have to provide proof of the purchase price and pay for the associated GST. That’s an additional cost that made me pause to consider my options for the next time. 

A golden opportunity for small business

The law change is good news for small businesses competing with international giants. There’s a big opportunity for brick-and-mortar stores to grow their business by getting people to shop local more often. 

To take advantage of this moment, it’s critical for local retailers to have a customer centric omni-channel strategy. This means providing an excellent, unique experience across all your channels, including your experiential and online stores, as well as digital channels.

Part of this strategy is being where your customers are. Taking advantage of digital tools will help you reach your target market quickly, and won’t cost a small fortune. An omni-channel approach means working smarter, without having to invest all your time and money in a physical store. Bigger is not necessarily better – if you can nail a seamless shopping experience across integrated channels, your customers will value this over a single-channel experience.

Businesses who adopt an omni-channel approach can determine what advantage they want to lead with – cost or differentiation. There might be an opportunity to sell more products now that they can compete more fairly on price.

Here are some questions I’d be asking any retailer.

  • With the increased cost on international purchases, can you provide a competitive price (within the 5% threshold suggested in the survey)? In addition with faster delivery or greater peace of mind on returns on the products you hold today?
  • Can you offer in-demand products that aren’t stocked locally but can be viably imported and sold at a more competitive price now?
  • Can you use search or marketplace advertising to highlight the availability of your product now that the international options are less attractive on price?
  • If you were to raise the price of your products to sit within the 5% range of the new cost of the internationally sold options, what could you reinvest that extra margin into? New tools? More profit? Better packaging or experiences? Additional advertising?

While our survey emphasises consumer priority around cost, remember to take advantages around convenience and experience.  

The human touch

The human touch can go a long way in making people feel good about a purchase. You can’t control what big overseas stores are doing, but you can control the environment and experience for your customers. We all know those particular shops that make you feel great as a customer.

While change and competition seems constant – it’s important for humans to connect and interact. The big change is not tech itself, but how we accept technology into our lives and businesses. Particularly the ways it can free us up to be more human and focus on the relationship with our customers.

Small businesses still need to remain relevant and appeal to a market that’s spoilt for choice from overseas. Using technology to streamline your business can help free up time to spend on staying ahead of the consumer curve.

Track your financial data, pricing and margin investment options so you can make good choices around these market needs. Focus on your customers, or even yourself, by looking for opportunities to automate or simplify the manual tasks. 

Retail is a key industry in New Zealand with over 23,000 registered businesses and 35,000 storefronts nationwide. This accounts for 10% of all jobs in the country. If you’re taking advantage of changes in law and technology to enable you to focus on what matters, hopefully this will continue to be true long into the future.

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