It has been a difficult few years for many Australian retailers in the maritime industry. The global financial crisis slowed sales across the board, and the surge in the Australian dollar and greater consumer confidence in online shopping has meant increased competition from cheaper overseas markets. These ‘grey marine products’ offer an affordable alternative to consumers, and many within the industry fear they will soon flood the market, with officially licenced retailers unable to compete. Businesses are beginning to question what can be done to combat their loss of sales and decreasing profit-margins in an ever-expanding global marketplace. However retailers must tread very carefully in order to avoid any action which could alienate customers and send them in search of better deals elsewhere. To help with this delicate balancing act, it is worthwhile looking at some legal options available to the marine industry in Australia that may encourage consumers to purchase locally and allow businesses to remain profitable.
The grey, or parallel market, is a term originating in the automotive industry. Traditionally it referred to the process whereby vehicles were imported legally into Australia through means other than those of the manufacturer’s official distribution channels. This was not originally of great concern to suppliers, as it was a costly process and people were only importing rare and foreign cars that were not available for purchase domestically. However as it became cheaper to buy from overseas the grey market grew to encompass familiar and commercially available vehicles, as well as variety of other products that directly competed with domestic sales. The depreciating American dollar has only amplified this process. In October of last year, for the first time since floating in 1973, the Australian dollar hit parity with the greenback. Suddenly goods purchased from the US seemed a much more attractive avenue for Australians. Now, as many readers will know firsthand, the illusive grey market is booming in relation to maritime goods. Of particular concern is the influx of outboard motors, as surplus stock from the economic downturn continues to be shovelled cheaply around the world from overflowing American warehouses.
The issue for industry is how to best respond to the increased competition. A political option requiring a legislative response would take time and may not be politically feasible given the size of the industry and lack of voter support. Further, the cost to pursue this path may be prohibitive and restrictive for many businesses. Market deregulation by governments around the world has encouraged competition and free market economies, whereas tariffs or other protectionist measures are increasingly seen as product of a bygone era; an unsustainable Band-Aid solution.
It is worth also considering the public response. A well-publicised survey last year found that 5% of retail shopping in Australia was done online, however only around half of these were to domestic websites. Retail giant Gerry Harvey recently led a highly unpopular and ultimately unsuccessful campaign of major retailers advocating a GST on imported goods under the value of one thousand dollars. From the outset this response was doomed to failure for it targeted the very consumers it relied upon. Following the immense public backlash, politicians eagerly dismissed the proposal. Somewhat ironically, the publicity that came with the campaign also did more damage than good, as consumers who had not previously been aware of online savings and the loop hole in our tax laws were now fully aware, and perhaps more eager to take advantage of the savings.
While consumers should not be viewed as the problem in this equation, their buying practices may damage the local industry. Although price largely remains the driving force behind growing internet sales, it is important to recognise that the consumer will make decisions to buy based on many different criteria including customer service, and the ongoing relationship of trust they have with a retailer. Therefore, the marine industry needs to look to the future and educate consumers in a market place, which has embraced the free market spirit and the ease of purchasing over the internet.
Three feasible options that could be simultaneously implemented are:
- Approaching your marine industry representatives to fund an education marketing campaign,
- Educating the consumer in the legal risks of purchasing grey products and benefits of purchasing from suppliers in Australia, and
- Individual businesses reviewing the terms of supply, distribution and licence agreements with their principal.
Funding
The effect of grey imports may cause long term damage across the marine industry that may not be enough for individual businesses to combat. And while individual manufactures try to raise the various issues of grey imports with information brochures and press releases, their piecemeal approach focus on those walking through the retailer’s doors, and largely fail to target or influence potential grey consumers. As has been done successfully by the automobile industry, a concerted industry-wide fund could allow a unified voice to spread the message out in the boating community of the risks of grey imports.
Education
The information available to consumers that guides decision making needs to be succinct and clear; grey imports come with hidden costs. Useful information regarding the pros and cons of the grey market needs to be accessible and available across various mediums. The choice is then in the hands of the consumer, who may decide against their purchase if fully informed of the legal issues surrounding grey products. While many in the industry are well versed in the issues, it is worth once again emphasising the benefits of purchasing from reputable dealers and supplier.
While grey imports are legal in Australia, the status of the products themselves is not so clear. Grey products may not be:
- compliant with Australian laws
- meet mandatory safety standards: for example engines without the c(√) standard may be withheld from the owner
- covered by a warranty in Australia as the importer is responsible for the warranty
Adding to these issues is the customer’s potential inability to make a legal claim against the importer when it all goes pear shaped. As far as the consumer is concerned this all adds up to lots of lost money and heart ache.
Additional concerns that may invariably form the part of any legal claim are:
- Manuals may not be preferred language
- Importers may not be situated to be able to service or repair the product
- Products may have to be freighted back to importer for any work
- As the product is not able to be seen before purchase, the consumer may purchase a lemon
Review of contracts
In addition to educating consumers of the importance of buying officially endorsed products, it may be the case that the marine industry needs to revisit supply, distribution and licensing contracts to ensure more competitive pricing policies. Obviously, the arrival of grey imports is an issue affecting manufactures, distributors, wholesalers and retailers alike, and may alone be the driving force behind a re-evaluation of international price differentiation practices of major multinational suppliers. While basic economic principles of supply and demand can account for cheaper goods in larger western markets, companies cannot continue to ignore the significant price differences, of often thousands of dollars, between identical goods in increasingly interconnected markets. On a smaller scale, in lieu of dwindling sales, individual businesses may be able to negotiate with wholesalers to limit onerous terms and penalty clauses, such as those relating to the required minimum number of units sold in a given time. It may be worth seeking independent legal advice about your options to renegotiate your contract.
There is no denying that the retail landscape has changed for good, and the grey clouds hovering over the maritime industry are likely here to stay. Those businesses which lack the flexibility to respond to these shifts will falter in the coming years. With greater convenience, range and prices, overseas internet shopping is set to continue to grow at an exponential rate. Retailers will have to offer new services and comparable prices to ensure they remain relevant and competitive. However this is not to say that businesses must abandon their core business practices and simply embrace the largely online world of grey imports. Energies should be put into collectively raising funds within the industry, educating the public of the risks, and questioning the contractual status-quo in order to successfully compete with the challenges of the ominous grey market.