IT giants Apple (AAPL), Adobe Systems (ADBE), and Microsoft (MSFT) have been summoned to appear before an Australian parliamentary committee to be grilled over their product pricing to Australian consumers.
After initially refusing to appear, these three giants are now expected to answer questions for the committee, as the committee investigates if and why Aussie consumers are charged higher prices for the same products delivered electronically compared with overseas customers.
While this committee is looking specifically at downloaded goods, where the cost to serve would appear to be virtually identical across geographic regions, investors should also be questioning for how much longer many branded goods can maintain such large price disparities and higher margins between Australia and the rest of the world.
Myer (MYR.AX) CEO Bernie Brooks has spoken at length about his attempts to achieve “price harmonisation” with his global suppliers. He is all too aware that customers will come in store and try goods, and then purchase from online overseas stores. In some cases this involves an overseas mailbox to circumvent restrictive shipping rules. It only takes two minutes at online shop Amazon (AMZN) to realise that Australian consumers are paying higher prices for branded goods.
Two glaring areas are clothing/footwear and electronics. While retailers such as The Athlete’s Foot operator RCG Group (RCG.AX), JB Hi-Fi (JBH.AX), and Harvey Norman (HVN.AX) are currently protected, thanks to domestic product licenses and rights, investors need to wonder how long this game can last. Retailers have been doing it tough for a number of reasons, however if they lose their ability to charge around three times the international price (yes the margin can be that salivating!), then some retailers could be destined for even skinnier profit margins in the future.
It is important for investors to always be alert to structural changes within an industry. What at first may look like a temporary issue and therefore a buying opportunity may actually turn out to be a structural issue and indeed a value trap.
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