Believe it or not there is tech news going on outside CES. Actually the whole old-school retail stores vs online GST-avoiding stores battle royale is really heating up. New age retailer, direct to consumer Kogan are fighting this aggressively, not content with already being cheaper, today they are lowering prices even further.. take that !

At Christmas I bought a Kogan 40” 100Hz LCD TV with Samsung internals, for $699, that same TV has now dropped to $639.

While Myer have taken a step into the fight, Harvey Norman’s executive chairman Gerry Harvey has certainly been the stand out timeworn from the old-school of business. The guys clearly a smart man, building a multi-million dollar empire that encompasses more than 160 stores across 7 countries, employing over 10,000 employees. Problem is, things are changing and he doesn’t like it.

Arguing that international retailers are getting a free ride by trading online and avoiding 10% GST on goods under $1000. His argument is that the government should reduce or eliminate this ‘loophole’ to save Australian jobs.

Kogan’s blog post today explains there’s a big hole in Harvey’s argument, the difference in pricing isn’t 10%.. it’s more than 50%.

There is one question they consistently fail to answer – if a mere 10% GST is the problem, then why are their prices often over 50% higher than offshore competitors? Take the Canon EOS 550D camera for instance. Today, this product costs $1349 at Harvey Norman, but only $698 online. That online price is from an Aussie online retailer who has all the same GST and duty costs that Harvey Norman would. That’s a price increase of more than 93% for the pleasure of shopping at Harvey Norman.

Given that Kogan and other online retailers cut out 2 middle men in the historical chain to retail, online is always going to be hard to compete with. The new manufacturers direct to consumers model eliminates wholesalers and retailers, along with their costs and mark-up. Personally I’m a big fan of shopping online, as our hard earned dollars belong in our pockets, not the pockets of others.

On an individual basis I do feel sorry for anyone who looses their jobs, however if your someone working in retail, I think there is an inherit understanding that your job’s permanency is always questionable. Some of these people who will end up loosing their jobs in the future could potentially be retrained and work on the online store.

Right now, Harvey Norman doesn’t have an online store, the best you can do is create a Wish List, print it out and take it to the store. Gerry Harvey continues to threaten in interviews that he will mirror what other businesses are doing and setup stores in china. Kogan are calling them out on it and saying, go right ahead, they are happy to compete.

Realistically this would take a monumental mind shift from Harvey Norman. Their current business model relies on high margins to generate massive profits. Alternatively the online world is inevitably in a race to the bottom, making up the dollars in volume.

Something else that frustrates me is the insanely loud advertising that treats their customers like idiots. Harvey Norman have obviously learnt that using this technique has worked well for them over the years and continue to do so. The problem is consumers are getting smarter, comparing prices online and going in-store to get hands on, then buying for the lowest price. The only reason Harvey Norman, and others, can continue this approach is that online buyers still make up a relatively small percentage of overall buyers.

That number is growing.

Our politicians should cower to companies who grasp at old business models and certainly shouldn’t legislate because they are crying poor. If there is a valid reason why the GST exception on international goods should be reduced, then lets have a debate about it, but as yet, I’ve heard nothing at all that resembles valid reasoning.

Read about Kogan’s store-wide price drop.

Update
Gerry Harvey has now backed down from his campaign to have GST applied to online / international goods. Read about it over at SMH.

Update 2
It seems news reports this morning were a little too quick to call this fight over.. Gerry Harvey now says he’s not backing down and will continue the fight. Read more on ABC News.

JB Hi-Fi have pulled the plug on CD Sales. Why ? They’re getting killed by online sales. Honestly is this at all surprising to people ? For years we’ve been gouged $30-$40 on albums that contain 1 to 2 great songs, 3 or 4 mediocre songs and a then completed with a bunch of fillers.

Singles are no better, at $5-$10 you might get a couple of B-side tracks, but usually they’re B-side for a reason.. because they’re crap !!

Online retailers (read: iTunes) give users the ability to choose tracks at their discretion, resulting at a much lower overall cost. Sure there’s the argument for that physical copy that might include lyrics, but ultimately that’s completely negated by the convenience of digital downloads.

Even desktop downloads are becoming outdated, direct-2-device downloads are clearly the future. The iPhone and many others are already offering this. So to buy your music, it’s as simple as pulling the device out of your pocket, searching for the song and clicking buy. 30 seconds later your listening to the music.

Today’s announcement by JB Hi-Fi will be the first of many by retailers to stop selling CD’s at retail. The only hope dedicated music stores like Sanity is to move online. Whilst they already have an online presence, they should be using this remaining time in retail to heavily promote their online site. They are of course in competition with the 10,000 pound gorilla – iTunes.

The other option for music retailers is to diversify they’re product range.. only problem is the natural extension is into other media like DVD. With Tivo and BlockBuster On Demand and again iTunes, already offering digital downloads that space is about to get even more competitive. Microsoft later this year will launch it’s 1080p movie streaming service via the Xbox 360, sure pricing is still to be announced, but good luck competing with that.

It truly is just a matter of time now before retail outlets like Target, K-mart, Big-W will switch out CD departments for other, more profitable merchandise. The question is how quickly these retailers will stop fighting the inevitable. Some will be pulled kicking and screaming into the new generation. The same goes for physical CD die hards, however if that’s you, you shouldn’t be too worried, there will still be CDs available at retail for many years to come, just be prepared to go searching for them.

There is of course still people selling records, this is exactly what will become of retail CD sales, small boutique, specialist stores that cater to a niche. Just don’t expect these to be in your local shopping centre, massive rent is the enemy of a dying business model.

Update
As discussed in the comments, JB Hi-Fi’s announcement is only related to the them ceasing the sales of singles. That said I doubt albums will be far behind.

More @ News.com.au