We often get asked the question, "why is it so much cheaper in the United States" etc. etc. And sometimes we don't get asked, we get told and we get accused of "ripping people off". I very calmly and politely explain why, some people genuinely ask the question, others down right have a crack at us without a clue as to what they're talking about. An example, a guy e-mails me last week and tells me he wants a Schecter Ultracure shipped to him in Queensland with a hard case for $1,000. These we sell, after discount, for over $1,500 WITHOUT a hard case. Now here's the cutest bit to his e-mail, went something along the lines of, "you can sell it to me for that because you'd still be making a couple hundred bucks if it was $900" So I look on Music123.com and MusiciansFriend.com, everyone's favourite places to go to see how much they're getting "screwed" in Australia. US$699 they sell it for. Ah, so the guy thinks I pay $700 for the guitar because in the USA they sell it for US$699. Nice logic, but VERY flawed. This e-mail is one, and one of the exceptions, that I simply permanently deleted without responding. It was foolish and ill informed and I probably should have e-mailed the guy back but can you really tell this person....?
Well, maybe I can, and herein I'll give it a go. I'm not whinging about the US prices, I don't care, I buy stuff from there (and Japan) myself so like I care I've likely bought significantly more than anyone who rings me up and decides to tell me he bought a Line 6 pedal from the US for such and such like he's an expert import/export consultant all of a sudden and I know shit. I understand the whole "people only see the dollars" thing, and that's completely cool and I completely understand. I do live in the same world as everyone else. I would, however, ask that the factors herein be considered before jumping to the conclusion that you're being "ripped off" (not everyone thinks that of course, but there will hopefully be info in here for everyone to digest and consider).
I need to add before going on as it isn't really what this is about but is worth mentioning, buying from the US isn't always flawless, I know, I've learnt much about shipping balls up, quarantine expenses, customs hold ups and extra charges, and stuffed gear landing than I care to remember. Three or four successful imports without a hitch doesn't constitute experience I'm afraid. There are many pitfalls but that's for the buyer to concern themselves with.
GST and Customs
The most obvious things to consider is duties and taxes. Obviously a dealer in the US doesn't pay import duties and GST when buying a Gibson from Gibson. An imported guitar from Asia attracts a low customs duty but that's it. The customs brokerage and shipping costs to get imported guitars to their destination are less because of a) wages (see below) and b) volume of shipping (plus a whole raft of other things). There are exceptions to these low tariffs and cheap shipping, we'll study German product, for example, in detail shortly.
You may avoid customs when you bring in a box of D'Addarios from America, but commercial importers aren't afforded that luxury, try bringing in a couple pallets of them and see what they cost you!
Direct from manufacturer
Most all products in the US are bought direct from the manufacturer. In Australia most all products are bought from an independant importer. You can say that "who needs a middle man" or whatever, but these are an EXTREMELY important part of the industry here. Manufacturers need these guys to represent their products, and help to manage their promotion, warranty obligations and branding in these territories, it's not in the interest of the manufacturer to do this, distributors like those in Australia are necessary.
A guy I've known for some time calls me up and, half sounding like he knew what my answer would be, asks me how much we sell DiMarzios for. I tell him and he's like, "well, I'm sorry to tell you, I can buy them from the US for such and such". So, that's more than I pay, what the fuck do you want me to say? He was gloating over this in some weird way. Obviously the first thing he's ever bought from the US and he feels pretty proud of himself. But the main reason for his call? He wants to try out one of these 1984 Kramers before buying one off MusicYo.com. Bad luck mate, that's the only place to buy one. Well, he's concerned that it may not be what he wants and would like to try one first. Well, I'll be, there's a scenario where this guy needs a local diistributor and a local dealer. So are these businesses supposed to exist so he can try shit out before buying it overseas? You know, this dude could NOT get his head around that???? Weird.
In the US stores buy at the same price and oftentimes less than what an importer here would buy them for (much less in the case of a large US chain store). They then have the added costs detailed herein to add. Then they need to make a little bit of profit if they can, then sell them to a store that has expenses to cover that are higher than a US store.
Consider the Caparisons to get an idea of what having a distributor responsible for a network of dealers and so forth adds to the price of something. We sell Caparison direct, there is no mark up to account for a third party, if they were being sold around a network of dealers there would need to be so they could make their money too. Caparison don't make enough guitars to keepp up with demand from it's three international dealers, let alone having 30 shops or something carrying them here! Now, if they were in dealers and were priced as such they would cost as much as some of the more expensive signature and custom shop models from ESP for instance. Having them priced they are people seem to think they aren't as good as the Custom Shop ESP or something, but the reality is they are also Custom Shop instruments. This is a price perception thing, if they were $6,000 a piece or something would they then be thought of differently?
Now, compare prices of German product here as opposed to the price of German product in the USA. Some stuff, such as Framus and Warwick, is sold through an independent distributor in the US. There's one factor which makes a more even argument, consumers of these products in the US are in the same boat as us. Tariffs between Germany and the US are high too, sort of evens out to our customs plus GST type of thing. And freight running between these two countries is not as high volume as it is between US and Asia, for instance, so they pay a little more like we do in freight costs. Now, compare a Framus Cobra head, for instance, at Music123.com. The cheapest I've seen them sell them for is US$2,399, with a pretty strong dollar at present that's AUD$3,109. We sell them for $3,545 every day. Now, take off the GST component of that price (no GST in the US after all), that's AUD$3,222.72. Well, bugger me, our every day price is only about $110 more than the best price one of the USA's biggest stores is able to do them for. Now, with that $110 you think we're making more? Not so, see below for more reasons why it's more expenisve to do everything in Australia and you'll likely see that we would make less than Music123 on that head. But it's a goood example because the conditions they experience for German product like that one are much like those we experience with almost everything here.
The cost of doing business in Australia
Basically it's more expensive to do business in Australia than the US, and it's more expensive for you guys to live too, day to day, for a start your taxes are higher. But again, the government isn't necessarily "ripping you off". I'm not getting into a full on political rant, but consider two basic things in Australia that the government is responsible for - health and welfare. Your taxes go a long way to paying for those services, there is generally less tax revenue collected in the US from the average business or worker. So ask yourself, where would you rather be when relying on the health or welfare systems? Enough said.
The volume of things in the US also keeps prices lower. Look at freight, for instance, it's insanely cheaper to freight things around the US than Australia. There is volume and there is more capacity for dropping stuff off along runs, there are FAR wider distances in Australia to cover wihtout being able to make any money along vast stretches for freight companies. And the wages that drivers are paid....well, that's discussed in depth below.
Small examples, Australian businesses pay more for credit card merchant fees, less volume. Australian businesses pay more for many services that are many and varied. Add to everyone of those things the cost of wages the businesses that supply these services incur, see below for that:
U.S. Minimum Wage
The US federal minimum wage for covered nonexempt employees is $5.15 an hour (at 12th September 2005 this equates to AUD$6.67 - in a 38-hour week that's AUD$253.46). The federal minimum wage provisions are contained in the Fair Labor Standards Act (FLSA). Many states also have minimum wage laws. Where an employee is subject to both the state and federal minimum wage laws, the employee is entitled to higher of the two minimum wages.
An employer of a tipped employee is only required to pay $2.13 an hour (AUD$2.76 an hour as at 12th September 2005) in direct wages if that amount plus the tips received equals at least the federal minimum wage, the employee retains all tips and the employee customarily and regularly receives more than $30 (AUD$38.87) a month in tips. If an employee's tips combined with the employer's direct wages of at least $2.13 (AUD$2.76) an hour do not equal the federal minimum hourly wage, the employer must make up the difference.
A minimum wage of $4.25 per hour (AUD$5.51) applies to young workers under the age of 20 during their first 90 consecutive calendar days of employment with an employer, as long as their work does not displace other workers. After 90 consecutive days of employment or the employee reaches 20 years of age, whichever comes first, the employee must receive a minimum wage of $5.15 (AUD$6.67) per hour.
The Full-time Student Program is for full-time students employed in retail or service stores, agriculture, or colleges and universities. The employer that hires students can obtain a certificate from the Department of Labor which allows the student to be paid not less than 85% of the minimum wage. The certificate also limits the hours that the student may work to 8 hours in a day and no more than 20 hours a week when school is in session and 40 hours when school is out, and requires the employer to follow all child labor laws. Once students graduate or leave school for good, they must be paid $5.15 (AUD$6.67) per hour.
The Minimum Wage In Australia
The minimum wage payable in Australia is $467.40 per week or $12.30 per hour. The ACTU in February 2005, on behalf of Australia's 1.6 million low paid award workers has made aplication to increase this minimum rate to $494 per week or $13 per hour.
In short, come work for me for half minimum wage and I'll get you all your stuff at US prices (I'd be making a loss on the cost of these things, but hell, I'll getting some CHEAP labour )
More cost of living information
A house for your average newlywed couple in the suburbs of many major US cities sells for around US$130,000 (AUD$173,459(. Can you say the same for your city in Australia?[/color]
That in it's own should be enough for people in Australia to work out just how things work and why you absolutely can not directlly compare US prices and Australian prices.
If you're importing you need to guard yourself against a poor dollar turnaround that could happen at anytime. When the Aussie mark was below 50 cents I didn't hear too many people bitching about the price of stuff here compared to the US. Many wholesalers lost some signifcant amounts of money having to absorb that, when times are good they need to try and recoup some of those losses too.
But the dollar's 90c now!
It can take months for favourable currency shifts to reflect in the market. Much of the stock in the marketplace now would have been built, bought and shipped months ago, when the dollar was 15% or more lower. What you see in currency conversion on any given day almost never has any relationship to the price of a product you're looking at that same day if it's stocked. Even if it's not stocked, it's inevitable the dollar will go down again. If an importer quotes you a price at 90c on something that mey be months away he will almost certainly take a hit on it when it is ready and needs to be paid for as the dollar would have dropped by then. maybe it won't, but there's a better than even chance it will. The importer is playing a risk game either side of currency shifts.
Doesn't look so straight forward anymore does it?
There are stacks and stacks of things to consider, Tyson, you're a business cat, what do you think you can add?
Please, feel free to discuss this, and ask of me anything you wish. It's basically the same for New Zealand too incidentally.
Edit: It has come to my attention this post is being quoted at another forum. This quote, in particular, seems to be being used for some sort of ammo to dicredit everything written:
I buy stuff from there (and Japan) myself so like I care I've likely bought significantly more than anyone who rings me up and decides to tell me he bought a Line 6 pedal from the US for such and such like he's an expert import/export consultant all of a sudden and I know shit.
At no point did I say I buy stuff from the US and Japan that wasn't already available here. I would be buying something not available in Australia. As many know, we are an importer of some brands too, so yes, we do buy stuff from the US and Asia in those cases also.
There are other points being argued that I would dsipute but I'm not going to get into them, things are as they are and nothing will change that.