Economic Structure and Performance of the Australian Retail Industry, Report No
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Economic Structure and Performance of the Productivity Commission Australian Retail Industry Inquiry Report No. 56, 4 November 2011 Commonwealth of Australia 2011 ISSN 1447-1329 ISBN 978-1-74037-379-1 This work is copyright. Apart from any use as permitted under the Copyright Act 1968, the work may be reproduced in whole or in part for study or training purposes, subject to the inclusion of an acknowledgment of the source. Reproduction for commercial use or sale requires prior written permission from the Productivity Commission. Requests and inquiries concerning reproduction and rights should be addressed to Media and Publications (see below). This publication is available from the Productivity Commission website at www.pc.gov.au. If you require part or all of this publication in a different format, please contact Media and Publications. Publications Inquiries: Media and Publications Productivity Commission Locked Bag 2 Collins Street East Melbourne VIC 8003 Tel: (03) 9653 2244 Fax: (03) 9653 2303 Email: [email protected] General Inquiries: Tel: (03) 9653 2100 or (02) 6240 3200 An appropriate citation for this paper is: Productivity Commission 2011, Economic Structure and Performance of the Australian Retail Industry, Report no. 56, Canberra. The Productivity Commission The Productivity Commission is the Australian Government’s independent research and advisory body on a range of economic, social and environmental issues affecting the welfare of Australians. Its role, expressed most simply, is to help governments make better policies, in the long term interest of the Australian community. The Commission’s independence is underpinned by an Act of Parliament. Its processes and outputs are open to public scrutiny and are driven by concern for the wellbeing of the community as a whole. Further information on the Productivity Commission can be obtained from the Commission’s website (www.pc.gov.au) or by contacting Media and Publications on (03) 9653 2244 or email: [email protected] Terms of reference I, Bill Shorten, Assistant Treasurer and Minister for Financial Services and Superannuation, pursuant to Parts 2 and 3 of the Productivity Commission Act 1998 hereby request that the Productivity Commission undertake an inquiry into the implications of globalisation for the Australian retail industry, with a view to informing the Government on whether current policy settings are appropriate in this environment. The Commission will commence the inquiry in February 2011 and report in November 2011. The Commission will hold hearings for the purpose of this inquiry. Scope of the Inquiry The Commission is requested to examine: 1. The current structure, performance and efficiency of the retail sector and impediments to its contribution to the Australian economy; 2. The drivers of structural change in the retail industry, including globalisation, increasing household and business access to the digital economy, cost structures of the domestic retail industry, employment structure, the exchange rate and structural change driven by the resources boom; 3. The broader issues which are contributing to an increase in online purchasing by Australian consumers and the role of online purchasing in providing consumers with greater choice, access and convenience; 4. The sustainability and appropriateness of the current indirect tax arrangements in this environment, including the impact on Commonwealth and State and Territory budgets, and the extent to which technology could reduce the administrative costs of collecting indirect taxes and duty on imported goods; and 5. Any other regulatory or policy issues which impact on structural change in the sector. The Commission is to provide both a draft and a final report, and the reports will be published. The government will consider the Commission’s recommendations, and its response will be announced as soon as possible after the receipt of the Commission’s report. Bill Shorten Assistant Treasurer [Received 3 February 2011] IV TERMS OF REFERENCE Contents Terms of reference IV Abbreviations IX Overview XIII Key points XIV Recommendations XL 1 About the inquiry 1 1.1 What the Commission has been asked to do 1 1.2 Scope of the inquiry 2 1.3 The Commission’s approach 4 1.4 A guide to the report 5 2 The role and development of Australian retail 7 2.1 What is the role of retail? 7 2.2 How has the retail industry developed in Australia? 9 3 The structure and performance of the retail industry 27 3.1 A snapshot of the retail industry 29 3.2 Market structure in retail 35 3.3 Indicators of retail performance 40 3.4 Conclusion 70 4 Trends and issues related to online retailing 73 4.1 The development of e-commerce and online retailing 74 4.2 Online share of retail sales 82 4.3 Estimates for online retail share of total retail sales in the United Kingdom and the United States 90 4.4 What is driving online sales? 93 4.5 Characteristics of online purchasing 95 4.6 The slow emergence of online grocery shopping 101 CONTENTS V 4.7 Rapid growth in m-commerce 102 4.8 Why has Australia lagged online sales of other countries? 103 4.9 Constraints to online growth 106 5 Consumer protection 115 5.1 Australia’s consumer protection laws and online retailing 116 5.2 Product safety and warranty issues in online retailing 119 5.3 Online transaction security and protection against fraud 131 5.4 Search engines 133 6 Retail price differences 139 6.1 The Commission’s retail price comparisons 141 6.2 Factors influencing retail prices 144 6.3 Conclusion 168 7 Appropriateness of current indirect tax arrangements 169 7.1 Low value importation threshold 170 7.2 The Australian threshold 172 7.3 Overseas indirect tax arrangements 177 7.4 Impact of the threshold on revenue 178 7.5 Processing of parcels entering Australia 182 7.6 Economic principles 188 7.7 Impact of the threshold arrangements 191 7.8 Changing the threshold 199 7.9 Options for reforming processes 203 7.10 Overseas online purchases of intangibles 209 7.11 The way forward 210 8 Planning and zoning regulation 215 8.1 How planning and zoning affects retail in Australia 216 8.2 The impact of planning and zoning regulations on retail competition — overseas evidence 221 8.3 Other impacts of planning and zoning regulations on the retail industry — overseas evidence 225 VI CONTENTS 8.4 The Australian experience with planning and zoning restrictions on competition 233 8.5 Planning regulation and compliance costs 256 9 Retail tenancy leases 259 9.1 The market for retail tenancy leases 260 9.2 What are retail tenancy leases and how are they regulated? 263 9.3 Recent regulation review and reform activity 264 9.4 COAG retail tenancy reform activity 265 9.5 The impact of planning and zoning on the market for retail tenancy leases 270 10 Retail trading hours regulation 275 10.1 Why are trading hours regulated? 276 10.2 What are the costs associated with regulation? 278 10.3 Changing social patterns have led to more liberalised trading hours in Australia 280 10.4 Are there benefits to be gained from deregulating shopping hours further in Australia? 292 10.5 Should retail trading hours be fully deregulated? 310 11 Workplace relations regulation 313 11.1 Introduction 314 11.2 Industrial relations laws and institutional arrangements 316 11.3 Setting pay and conditions in retail 320 11.4 Wages and earnings outcomes and trends 327 11.5 Concerns about awards and labour costs 330 11.6 Workplace flexibility 346 11.7 Conclusion 370 12 Employment, skills and training 375 12.1 Employment 376 12.2 Training 392 12.3 Are labour shortages and skill levels affecting the retail industry? 398 12.4 Conclusion 402 CONTENTS VII 13 Other regulatory burdens 405 13.1 Introduction 406 13.2 Concerns raised with this review 406 13.3 Existing processes for the identification and reform of unnecessary regulatory burdens 414 13.4 Conclusion 416 A Consultation 421 References 433 The following appendices are referred to in the chapters, but are not reproduced in the report. They are available on the inquiry website: www. pc.gov.au/projects/inquiry/retail-industry B Retail tenancy legislative activity by state C Wages and earnings outcomes and trends D Flexibility provisions in enterprise agreements E The Commission’s retail price comparisons F Foreign indirect tax arrangements G Retail productivity H Impacts of reducing the LVT VIII CONTENTS Abbreviations AAWI Average annualised wage increases ABS Australian Bureau of Statistics ACCC Australian Competition and Consumer Commission ACL Australian Consumer Law ACMA Australian Communications and Media Authority ACTU Australian Council of Trade Unions AiG Australian Industry Group AIRC Australian Industrial Relations Commission AMA Australian Music Association ANRA Australian National Retailers Association ANZSIC Australian and New Zealand Standard Industrial Classification APEC Asia-Pacific Economic Cooperation AQIS Australian Quarantine and Inspection Service ARA Australian Retailers Association ASIC Australian Securities and Investment Commission AWA Australian Workplace Agreements AWE Average weekly earnings AWOTE Average weekly ordinary time earnings BGRA Bulky Goods Retailers Association BLS Bureau of Labor Statistics (US) ABBREVIATIONS IX BRCWG Business Regulation and Competition Working Group B2B Business to business B2C Business to consumer CAPEC Conference of Asia Pacific Express Carriers COAG Council of Australian Governments COSBOA Council of Small Business Organisations of Australia DEEWR Department of Education, Employment and Workplace Relations (Australian Government)