Online Shopping: A Threat to Local Retailers?

To start off, I would first like to apologise for the lack of entries over the past two weeks. Regrettably, I have been busy and things sort of slipped past my mind. But don’t worry, I am committed to this blog and will continue updates. Anyway, I thought it would be interesting to do a follow-up article of sorts to the issues of Trade-Bait. One of the issues I discussed with trade-bait is how it prevented people from getting games at cheap prices who legitimately wanted to play them. This time, I’m going to take a look at how purchasing games online is having a similar affect, albeit for different reasons.

Firstly, we need to take a look at the basic principles of the retail industry. With general goods such as games, most stores purchase stock from distributors. The wholesale price varies from game to game, but generally costs will change on a monthly basis. One month the wholesale price might be $75, the next month it could drop down to $50 due to a lack of orders. To gain profit retailers obviously have to sell the product above wholesale cost. They can sell it at the full suggested retail price or, for the sake of being competitive, sell it for a couple of dollars above what they paid for it.

Now here’s the thing, if the store doesn’t get a lot of consumers purchasing the game, they’re more than likely to up the price. You have to consider how much money it costs them to run the store. Staff’s wages need to be paid, electricity bill, rent, it all adds up. This is why I’m more than happy to pay a few more dollars at the mall – it puts money back into the local economy and encourages retailers to keep competitive prices.

Looking at popular online retailers, a majority of them are either based overseas or import games from other countries. Granted, sometimes you can never find a particular game locally and have no alternative than to purchase online, but it’s still something that is having a major impact on the economy. It’s not just games that are being import from online shops, people are also importing DVDs, clothing, computers and everything else in between. While it’s true we need to save every cent we earn, there needs to be a balance. If everyone bought their PC games from Steam, for example, that’s a loss of profit for the games shops at your local shopping complex.

Let’s take a look at GAME and EB Games as a more in-depth example. Assume for a moment they only sold PC games. Let’s say DVD Crave started selling their games at 50 cents above the cost of wholesale price as they had become very popular Australia-wide. Since they just have the one warehouse and a few staff members, their sales margins and profits far outweigh the cost to run the business. Take a trip to the mall and you’ll see EB Games and GAME. They have less consumers, less exposure, and are competing against each other. Suddenly, a bulk of their customers start purchasing from DVD Crave. They investigate and discover the prices, but they can’t possibly charge that since profit would be too low. Eventually, it gets to the point where both stores aren’t making any profit at all and they have to close.

So, what’s the big deal? The consumers get what they want at a cheaper price and the big power hungry EB and GAME lost profit and had to close up shop. Well, look at who it’s directly affecting – the staff. When I go to my local EB I see at least two staff working behind the counter, and during busier periods I’ve seen up to four staff serving. That’s four (eight including GAME) people that no longer have jobs. Now, apply this situation to the hundreds of games shops in Australia (or any country for that matter) and you’ll see the potential impact it has on the unemployment rate. It doesn’t stop there though, if said online retailer imported a majority of their stock, then we’d start seeing local distributors going under. In a simpler way you can look at it like a food chain. If you take away any one ‘food’ source, the entire system comes crashing down.

For the above example I also used an Australian online retailer. If you look at overseas retailers then the situation is a little bit different. Our money is going overseas in that instance, so the money isn’t being spent here in Australia. In DVD Crave’s case, they’d put the money back into our economy by paying their operation costs, but for someone like PlayAsia it all goes into the Hong Kong market.

I sort of got sidetracked about why purchasing things online means local retailers won’t sell things at cheaper prices, but the bottom line is purchasing online isn’t necessarily a bad thing. You can often find rare games online, and for people who live in country towns they probably don’t have any alternative. However, if retailers can’t make a substantial profit, then it means they’ll up the price and, in worst case scenarios, may possible close down entirely. So be reasonable with your purchases in future – is that extra $2 you’re saving on PlayAsia really worth it, or is it better spent at the local JB Hi-Fi or Kmart?