So far, in my "Australia Tax" series of articles, I've covered a few things. Starting with the fact that we pay sizeable price premiums on skincare, cosmetics and fragrances (among a whole lot of other products; this phenomenon is replicated across almost every category, and some software companies such as Adobe would get a gold medal on the wall of shame). I have had a look at exchange rates, and wages. And while exchange rates do little to explain our price gaps post-2006, the wages part was a bit of an eye-opener.
So what other components factor in when it comes to retail? After costs of inventory and wages, the next most important point is overheads. And the biggest component of overheads can often be rent.
It can be quite difficult to get accurate data on retail rents, because large retailers can often negotiate deals that are not made public. However, this article in SMH, using data from this publication from Colliers provides some interesting information. According to Global Retail 2013 (Colliers), "Rents along prime CBD mall locations in Australia consistently rank among the highest in the world".
Information from CBRE, published in another SMH article also points to retail rents in both Melbourne and Sydney being high enough to give other large cities a good run for their money. Concrete data for rents paid by large department stores has evaded me so far.
I think even with the relatively small number of articles pointing in that direction, it is not an unreasonable conclusion to draw that Australian rents are very high. They are high enough to compete with the prime locations of New York, London and Shanghai, which is saying something.
So we pay the highest minimum wages in the world, have high rents that retailers pay (and eventually pass on to the consumer), have a potential issue with volatility of the Australian dollar, and in general, the relatively high purchase power of the Australian consumer also adds to the mix. So far so good? Perhaps. But there still remains one key question...
After paying high wages and high rents, high freight costs and what not, does the Australian retailer keep the same in his pocket as a comparable retailer in the UK or USA? That is something for the next article.
