The Geelong Advertiser had a report about the potential impact of the carbon tax on retail tenancy costs. Landlord have been good at passing on all additional costs for decades. Related: I note that there are reports today that Myer will pull out of centres where it does not get better rent deals.
I have been fortunate in recent years to be able to negotiate rent abatement in under performing centres, 33% in one case.
The Carbon Tax concerns me for the following reason.
Its a cascading tax, it adds on at each stage of every process, unlike the GST you dont claim credits for the inputs.
We are at the end of the chain. We will have higher power bills, we will have higher rents, we will probably also have higher wages when the union movements make their claims.
What worries me most however is the products we sell, especially magazines. They will cost more to make, they will cost more to transport but I fear the prices to the customers wont go up and therefore our margins will shrink. I fear the magazines companies will want to look kind to their consumers by keeping their prices and pass on all their costs to us.
The best case scenario is we maintain margin but have higher costs, and thats not a great outcome when our customers will have even greater pressure on their budgets.
Brett
You are right, a few people are completely unaware that it is a cascading Tax. The so called top 500 polluters were never going to absorb the carbon tax, they as you said are going to pass this cost down the line.
This as you say, will land eventually at our feet. You are right, utilities, overheads and all the areas & more will pass on their bit as well to the last one in the chain.
I am not sure what stratetgy I am going to use at the moment to accomodate this impending flow on effect. We have absorbed so much already that the sponge is dry.
Fairfax have already indicated in the next week or so that the Illawarra Mecurity will rise 10 cents, to $1.30, this is not a problem in the sense as we do get more commission.
It is a hard one this post and how to combat it as you say profits will only decline when all the flow on affect make it to our individual business’s.
It is going to be hard but we need to stock more items that do not have a firm rrp on the products. As the suppliers of our major departments do not care that our overheads have risen and refuse to increase the cover price, we need to move into stock that we can set the price in order to cover costs.
I say it will be hard because our industry in dominated by fixed price departments
lotto, mags, papers, cards, recharge. Whereas other retailers can move prices to cover costs we have to try and remove costs from the bottom end.
We need to grow sales of non fixed priced items as like most small businesses we simply cannot keep absorbing huge increases in costs for no gain in margins.
The suppliers who refuse to increase our margins will soon see their space allocations drop.
We have started to do this by reducing space for papers and mags and giving it over to books and gift lines, more of our card space is given to cards that have no rrp on the back so we can adjust prices, we have introduced more stock that is not easily price matched.
This is where coles and woolies win out, they can move the price of their goods as they need to so customers do not have a fixed retail price in their heads when they shop, so they tend to browse more and in the end spend more. How many times does someone come in with the exact change for something so there is no way to upsell but who goes into coles with the exact money?
Luke I don’t think it is as simple as looking at margin %. Margin dollars are equally important. Any newsagent cutting space to an existing category needs to look at any possible traffic impact. But more important than that they need to do all of this in the context of what the business stands for, its USP.
Derek and Brett, one focus for us this year has been margin. We have successfully increased our overall trading GP by three percentage points by choosing suppliers carefully. We have increased profitability through a mix of more traffic, margin (as noted above) and efficiency (increasing the basket).
Newsagents need to own their situation. By this I mean that we need to take responsibility for our businesses. Historically our channel has not done this and we are weaker for this. The carbon tax is here, how we deal with it is up to us.
Mark,
Agree 110%. My post was to point out this problem, I fear some have not fully grasped what is on the way. Indeed many I speak to were quite poorly informed on this issue.
My mental challenge lately is to work out how to display lots and lots of magazine titles in less space, reduce their footprint without reducing range.
Great replies and I hope that we can read more replies, the highlight for me was I was / am not really prepared for the Carbon Tax cascade.
Brett to do that we need to go back to a model which was used up to the mid 1990s where around half a cover was displayed vertically.
I have a working plan on paper, full face display for ALL titles. Needs some fine detail work however.
Given that almost all retailers pay outgoings, I’m not sure what additional costs landlords could pass on under such a clause?
Brett,
Most taxes are cascading. In fact the GST is the only one in Aust I can think of that isn’t. The impact on the introduction of the carbon tax on CPI is expected to be about 0.7% – see http://www.carbontax.net.au/is-the-carbon-tax-inflationary/
If magazine publishers don’t adjust their prices to reflect a rise in costs then you are suggesting they will absorb that cost. I find that unlikely.
Dekka34,
The top 500 poluters were never ment to absorb the cost. They are ment to either find ways to emitt less carbon or pass on the cost of the carbon credit. That is the reason the scheme is coupled with a range of tax cuts and compensation.
Jarryd, Is this the same Treasury that forecast the MRRT incorrectly four times in 6 months? The same one that missed the nations forecast earnings by 23% in 07/8, 14% in 08/9, the Treasury with all their PHDs did not see the GFC coming?
Lets see how their 0.7% works out shall we?
Please lets not get into a political fight. I think regulars here know where others stand. The carbon tax has been passed the future is about living with those changes.
Brett,
They are ‘estimates’. Economics is not an exact science. Treasury make the best projections possible with the information available.
It is also worth noting that the estimates from treasury are usually conservative. The figures you point to we’re an underestimate of earnings. Treasury estimated the GST would increase CPI by 2.75% and it ended up being only 2.5%.
Mark, you have to look at margin if you have to work within a set rrp that is set by the supplier without any thought about our rising costs, my point was to move into products that do not limit profits as set price products do. We stock cards that we can make 70-100% profit easy and are limiting the stock in which we can only make the set 50%. We stock books that we sell for the same price as mags but instead of making 25% we make 40-60%. All these little cahnges make a huge difference to the bottom line.
Traffic flow in newsagencies and our usp is no longer defined by mags, papers, cards or stationery as these can be sourced from every tom, dick and harry at the same price all over, what will set us apart is our overall offer and the fact that we are still open as different from all the other empty shops that are popping up.
Luke,
Where are you getting your books?
Brett, We source our books from a few places, ABW, Aust bookgroup and a few more internet based groups, to start with we typed in cheap wholesale books into the net and started contacting the Aust based one, you can go overseas but we prefer not to.
We get titles in that match our magazine demographics as well as seasonal stuff. We find that having more then 1 iron in the fire as far as suppliers allows us to get a better deal.
Luke, many thanks