Wiggle, the UK-based e-commerce giant that last year claimed to ship more than 400 individual parcels per day to Australia, has announced a partnership with two bicycle “service points” in Sydney and Melbourne. In an email sent out to its Australian customers earlier this month, Wiggle announced the new initiative, which will no doubt cause further anxiety amongst the local bicycle retail community.
Wiggle’s growth parallels the purchasing power of Australian consumers. The local dollar is enjoying sustained record highs on the back of high commodity prices, courtesy of Chinese demand for Australia’s natural resources. Savvy Australian consumers are flocking to overseas retailers, especially those based in Europe and the USA as currencies from these economies have devalued markedly when compared to Australia’s dollar. Relative market prices in the Australian bicycle retail sector have also been stubbornly high for years, due to high overheads and protected supply chains, adding greater allure to overseas-sourced product.
Whilst Wiggle’s majority stakeholder, ISIS Equity Partners, looks for potential buyers of the powerhouse UK-based online retailer – Wiggle’s year-on-year revenue grew by 56% (to GBP86.8m) last financial year – the Australian bicycle industry is eagerly awaiting final recommendations from a year-long Productivity Commission1 review, entitled ‘Economic Structure and Performance of the Australian Retail Industry’, which was submitted to the Government on November 4. That final report is required to be tabled in Parliament within 25 days of that date.
In an attempt to stymie the inflow of foreign-sourced bicycle products, Bicycle Industries Australia (BIA), the wholesale industry’s peak body and a founding member of the Fair Imports Alliance2, is lobbying federal government for legislative change to the Low Value Threshold (LVT) applied to imports. Currently, any purchase under AUD1,000 made through an overseas-based retailer can be imported free of taxes and duties. The Fair Imports Alliance is pushing for a greatly reduced LVT.
In July of this year, the Alliance obtained documents under Freedom of Information (FOI) that revealed the Government had, in October 2010, sought advice from Treasury and Customs departments on when a $500 threshold could be initiated.
“The documents disclose that 1 July 2011 was nominated as the start date for a lower threshold and that Customs provided advice that a reduced threshold was administratively feasible,” stated Brad Kitschke, the Alliance’s spokesperson, in a FIA-issued press release.
“The Government has always claimed a lower threshold would be administratively unfeasible but these documents reveal otherwise. They show that it could be done, that plans were in place to reduce the threshold and advice was sought as to the earliest possible start date.
“This information demonstrates the Government was giving serious consideration to reducing the GST (Goods and Services Tax) threshold on imports prior to the announcement of the Productivity Commission Inquiry. Now that we have proof a lower threshold is both administratively feasible and economically beneficial we eagerly await the Productivity Commission’s recommendations when its draft report is released in August.
“The Government established the Productivity Commission Inquiry and we have to put our faith in that process, even though politicians from all sides continually undermine the Inquiry by pre-empting the outcome and opposing a lower threshold. We want politicians to have an open mind to the outcome of the Inquiry. No matter what, we won’t stop fighting for the retail sector and the reform that is needed.”
[Cycling iQ will be interviewing the head of BIA, Peter Bourke, next week for an updated bicycle industry perspective]
The crux of the issue is less about competitive advantage (import duties on bicycle parts is 5%, whilst GST is 10%) and more about principle. Importers generally feel gypped that they are forced to pay input costs on imports that online retailers do not have to account for – the debate seems to have moved on from blaming consumers for, well, being consumers.
Anecdotally, Australia-bound sales from Wiggle and Chain Reaction Cycles – the two largest UK online bicycle retailers – would appear to be substantial. This sentiment is actually valid, when considering figures obtained from the duo’s most recent annual reports and various media reports:
WIGGLE annual summary | FY2010/11 (01/02/2010 – 31/01/2011)
Revenue = GBP86.8m (56% y-o-y growth)
Gross Profit = GBP23m
Operating Profit = GBP10.2m
Year-on-year international sales increase = 123%
500,000 customers shopped with Wiggle in 12 months from July 2010 to June 2011
Parcels shipped per day to AUS = more than 400 (source: The Guardian)
(Whimsical sidenote: number of parcels per day shipped to Japan = more than 10,000 per week)
CHAIN REACTION CYCLES annual summary | FY2010/11 (01/01/2010 – 31/12/2010)
Revenue GBP109.4m (41% y-o-y growth)
Gross profit = GPM39.3m
OP = GBP9.5m
Revenue from outside EU = 36.5% (2009 = 27.4%)
1,302,974 unique orders
Average parcel value – GBP84
If we were to apply the average parcel value (AUD133) from Chain Reaction Cycles’s annual report with a conservative estimate they also sent 400 parcels per week (though it seems plausible, based on revenue, their shipments to Australia would by higher than Wiggle) to Australian consumers, the formula looks like this:
Wiggle total annual sales (2010) = AUD138m
Parcels sent to AUS (146,000) x AUD133 = AUD19.4m = 14% global revenue
Chain Reaction Cycles annual sales (2010) = AUD174.2m
Parcels sent to AUS (146,000) x AUD133 = AUD19.4m = 11.1% global revenue (and 30% non-EU revenue)
Wiggle + Chain Reaction Cycles combined annual sales to Australia (2010) = 38.8m (Estimate)
Today, the Australian Bicycle Council released an overview of the contribution cycling makes to the Australian economy. Interestingly, the market value of bicycles was stated as AUD1billion. If this were accurate (unlikely), the combined market capitalization of Wiggle and Chain Reaction Cycles would be 3.88%. That is a reasonably serious chunk of market cap; equivalent to 40 bicycle retailers with a modest annual turnover of almost AUD1,000,000 each.
Unexpectedly, opposition to Wiggle’s push into foreign markets isn’t just coming from traditional front-line retail outlets in Australia. Competitive Cyclist, the US-based e-tailer recently acquired by Backcountry.com, who itself targets overseas markets, wrote a post on its well-read blog complaining about the British company’s “exploitation” of a “market anomaly”. Readers of the blog have hammered Competitive Cyclist’s seemingly hypocritical remarks in the growing comments section.
Second-round bids for Wiggle will be held either tomorrow, or November 28th, depending on source. Currently, Bridgepoint and EQT Partners are amongst the last bidders standing; it’s unclear if Warburg Pincus, an initial bidder, still has appetite for the game.
If the Productivity Commission’s recommendations are in favour of a reduced LVT, implementation could take some time. In the interim, perhaps the Australian Government could find a lazy GBP200m, which Wiggle is reportedly valued at, from the forward tax revenue generated from a reduced LVT, thereby securing a “perfect circle” of investment vehicle and import tax revenue. Better get a Wiggle on.
Fair Imports Alliance
Productivity Commission Inquiry
1the Australian Government’s independent economic research and advisory body
2Fair Imports Alliance comprises the following organisations: Australian Retailers Association (ARA), Australian Sporting Goods Association (ASGA), Bicycle Industries Australia (BIA), Australian Toy Association (ATA), Photo Marketing Association (PMA), Australian Fishing Trade Association (AFTA), Australian Booksellers Association (ABA), Australian Music Association (AMA) and the Retail Cycle Traders Australian (RCTA).
Great article. Its an interesting strategy by Wiggle to open service agents, when I received this email from Wiggle I smirked, thinking ‘interesting move’ to service customers and build the relationship yet without selling.
In my view its a backward step for Australia to reduce the LVT, its a stop gap filler in an effort to protect Australian business. Globalisation was yesterday, I’m for protecting Australian business, I’m not for taxing goods crippling business and consumers and making goods expensive whether purchased local or glocal.
Thanks for commenting Priestie. I’m really looking forward to the PC’s final recommendations and, if a reduced LVT is mooted, a cost:benefit of a reduced LVT to the AUS economy.
So much for being a free country lol Rather than introducing more taxes why dont they investigate the profit margins that retailers are making. The cost of living in Australia is becoming absolutely ridiculous
When will the Aussie government start to see that we are being ripped off by Aussie retailers. And why is that even when paying duty and GST i can generally import the products myself for way less than my LBS can sell them to me for?
Thanks for your comments Jeff.
I hope some answers to your last question can be found in the ‘Vertical limit’ series which starts
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