Woolworths, Mastercard, payroll tax: Q&A with Russell Zimmerman of the Australian Retailers Association

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Woolworths, Mastercard, payroll tax: Q&A with Russell Zimmerman of the Australian Retailers Association

From takeover battles to credit card surcharging, what are the issues affecting retailers? We spoke to the Australian Retailers Association’s Russell Zimmerman.

Myer chief Bernie Brookes’ comments in the Sydney Morning Herald describing the Australian retail sector as a “tale of woe” wouldn’t be music to the ears of shop owners around the country. But turbulence isn’t exactly new to this sector – whether it be “big box” stores, the Internet, or the arrival of names like Topshop, changes are plenty.

One man regularly in the headlines is Russell Zimmerman, executive director of the Australian Retailers Association, which represents over 5,000 independent retailers. He’s been vocal about the carbon tax, payroll tax, rents, Paid Parental Leave and the minimum wage among other topics.

BIT spoke to Russell Zimmerman and a selected transcript follows:

BIT: Takeovers of businesses by Woolworths and Wesfarmers continue to make headlines. What is the ARA’s position on those takeovers?

Russell Zimmerman: Firstly, can I say we’ve got a competition watchdog, being the ACCC. They’re there for a reason - that is to ensure that there is no abuse of market power. Obviously in an efficient retail system you need good competition, you don’t need to end up with one major brand of shoe shops and one major brand of dress shops and one major brand of supermarkets. We would support any moves to ensure, that’s not to say that they should not allow these takeovers to happen, but just to ensure that there’s good strong competition for the future.

BIT: Are there many takeovers you’re aware of?

Russell Zimmerman: I think you need to look at where they’re coming from. I notice the other day they want to takeover a hotel down in the southern end of Sydney. Over the past 18 months or so, Woolworths in particular have purchased hardware stores, because they’re interested in the business of making sure they’re in the hardware business as competition to Bunnings. So they have been out and purchased a number of hardware stores. There’s a number of hotels in particular in Queensland that Woolworths were buying. Look at Coles, they took over Harris Technology. So over a period of time they have taken over a number of organisations....essentially that can be good for them. If you take the hardware issue, for example, that could be good because it’s giving them bigger buying power. But it’s got to be balanced by the fact that you don’t want to end up with just a Coles and a Woolworths hardware store, if I can put it that way. There has to be kept a very strong balance in these things.

If you go back to the Woolworths situation. They took over John Danks & Son, which was a wholesaler to the hardware industry... so I guess wherever you increase the volume of your business, you also increase your buying power, but as I said that has to be weighed very much against the fact that you don’t want to end up with a Coles and Woolworths hardware store only. You certainly want to keep other hardware stores out there. I did notice that Metcash has now made a bid for Mitre 10 [since this interview Metcash reportedly looks set to take "full control" of Mitre 10], so that keeps the hardware industry with at least a third player in it to maintain the balance, if I can put it that way…

BIT: Where do you think this trend will end?

Russell Zimmerman: Well, there is a certain amount of people out there – and I’m talking about consumers now – who in my opinion, they’re looking at what they can get in those big stores. Invariably [the stores] have to buy a large amount of their product that’s on their shelf, and these stores have come out quite categorically and said that they’re doing this - they’re putting in their home brand products. So their own brand, rather than stocking other brands. I think there is a consumer out there that is getting concerned about that and wants to be able to buy the branded products that they’ve always been able to buy. So in other words, they want to be able to buy the Edgell's beetroot, or they want to be able to buy, I don’t know, Golden Circle, and they don’t necessarily want to buy the home brand. I think there will be consumers  who will be fed up to the back teeth with this and they will look to stores that give them the products that they want, rather than being forced to buy products that they don’t necessarily want. They’re not being given the choice to buy the brands of products that they would like to buy.

[Big retailers] do it at their own peril, because there is a consumer that wants to buy their food by known brands. People will vote with their feet. I know they say they do their research and they say consumers want their home products, but I don’t think they ask the right questions sometimes. Our view is there are consumers out there who actually do want the Krafts and the Golden Circles.

BIT: What is the ARA’s position on the upcoming changes (to come into force in January 2013) that will limit excessive surcharges being charged by retailers when customers pay by credit card?

Russell Zimmerman: Our preferred stance is that they should not be able to cap a surcharge. But the Reserve Bank came out with three options and we did agree that if they did decide to put a cap on that there was one option that we would prefer – and that is the option that they’ve come out with…

What the Australian Retailers Association’s view on this is, the problem we perceive, is that this now becomes a incumbent on the retailer to prove that he isn’t surcharging. It’s another layer of added paperwork for a retailer to do. I’m pleased to say that the greater majority of our membership do not surcharge. I believe that this has been instigated for a particular reason and I think that this particular reason is that there are some merchants - I won’t even call them retailers - that are surcharging and that the Visa and Mastercard perceived that those people are charging way too much. Essentially if a retailer is questioned about this, it’s another layer of paperwork for them. It’s something they don’t need.

I would say generally speaking, as a generalised rule across most retail industries, surcharging will actually only give a bad customer experience. That’s probably the reason why all of our major retail chains, even in our smaller retailers, tend not to surcharge. Where we do see surcharging in our retail membership clientele, quite often it’s for American Express and or Diners Club, and those tend to have a much higher merchant service fee than typically the Visa and Mastercard do.

BIT: What does it typically cost to accept credit card payments?

Russell Zimmerman: …It’s about $27.50 a month including GST for the machine. The line rental is around about $30 per month. So there’s $60 to $65 a month on those two things. Then typically you’ve got a merchant service fee, and the merchant service fee in average terms for a small retailer, they should be able to get it for under the 1% of the transaction fee, for Visa and Mastercard. The Reserve Bank will have rates up on their site that will give you these figures and they might alter slightly to what I’m giving you. And EFTPOS generally for most retailers is a clip per transaction, and that clip per transaction is probably something like 14 or 15 cents a transaction.

Now again, it depends what type of business you’re in. If you’re selling shoes at a $150 a throw, 15 cents a transaction isn’t terribly much. But if you’re in a newsagency or maybe a dry cleaners, you might be doing a lot of clips, but not at much money – you might be doing a three or four dollar sale, and all of a sudden you take 15 cents out of it for an EFTPOS transaction and that becomes quite a much higher fee.

EFTPOS made some changes to their merchant service fee and we had a retailer who has got a number of grocery stores throughout the country – smaller grocery stores – and I think his bottom line was going to change by half a million dollars. Let me tell you that’s a hell of a lot of money off your bottom line.

BIT: How have those changes affected retailers?

Russell Zimmerman: The fee [for EFTPOS transactions] virtually doubled - if you were paying 6 cents, you jumped from 6 cents to about 13 cents overnight. The whole system was changed. The retailer is being charged more.

It didn’t go down with a lot of [retailers] very well. If you are a footwear retailer or a clothing retailer and you’re selling goods at $150, to lose 6 cents on tem is probably negligible. I’m not trying to be flippant about it, but yes it’s an extra cost in your business... but the problem is the EFTPOS card is generally used for what I call low volume, high value transactions. When I’m talking about low value, I’m talking about sub-$30, with lots and lots of transactions. So there might be, I don’t know, hundreds of transactions a day. With a credit card, they then tend to be things that are well over $30 - clothing, footwear, large purchases in hardware stores, that type of thing – so $50+ charges, and you’re paying a percentage of them…

BIT: Is there any move by retailers to avoid these costs?

Russell Zimmerman: How can you avoid them? The only way you can avoid them is to install your own switch. There are only two retailers in Australia who have their own switching arrangements; one is Coles and one’s Woolworths... What they do is they virtually avoid having an acquiring bank - they are their own acquirer. So Coles and Woolworths deal directly with the issuing bank in most cases, so save a lot of money. To install a switch at the moment in Australia I think, I heard figures floating around yesterday that Woolworths spent $80 million on a switch. It’s a lot dearer than what the average retailer could afford to put in.

Are there likely to be changes? Absolutely. The Reserve Bank has put out the fact that they want to put a hub in the marketplace. What you have to do now is join up to what they call the bilateral system to do a deal, particularly on EFTPOS, when you own your own switch. Well, if they put a hub in, that will make a total difference and it will make it a little bit easier for some of the larger retail chains – you certainly won’t get the Mum and Dad stores – but the larger retail chains will probably put their own switch in and start dealing directly with the system. But that’s still a couple of years away before they even put a hub in rather than use what’s currently known as the bilateral system.

BIT: What if retailers didn’t use POS terminals, used tablet computers instead? Would that be cheaper?

Russell Zimmerman: No, because you’ve still got to eventually put it back to an acquiring bank. The only thing you might eventually avoid is the cost of renting the terminal. If you go into an Apple store I think they use a mobile phone – I’m not quite sure how Apple does it. The terminal is not the cost. The cost comes in in the merchant service fee. That’s really where all the costs come in.

I can’t speak specifically about these tablets that people are putting in, but look I think that one of the things you’re going to see is some vast changes in the payment industry over the next 2,3 ,4 5, years. If I use a very simple analogy, if you and I go out for lunch together and I pick up the bill at the end and you say to me, “look, I’ll fix you up for that” - at the moment you can only probably pay me cash or you can ask me for a whole lot of details about my bank account and you can deposit the money in my bank account. That’s very cumbersome.

I would reckon that within five years and maybe under, if you and I go out for lunch and I pay for lunch and you say “Right, look I’ll fix that up and put that into your account, what’s your mobile phone number?” - I give you my mobile phone number, you will then transfer that cash in and it will be in real-time technology, so I will be able to actually sit there on my mobile phone and see that you have deposited half the cost of the lunch in my bank account and I now have that money in my bank account. That is where technology is moving to, and most definitely the iPhones and tablets, or as they now call them phablets, I’m told, then we will be using those sorts of things to make payments to retailers, even. That will be done probably with a chip in the phone or in the phablet, and you will probably tap on it, and even rather than put your PIN number in on the machine that the retailer has, you’ll probably put your PIN number in the phone or phablet, and the transaction will come through that way and you’ll probably get a receipt back to your mobile phone or phablet. Technology is moving very quickly.

BIT: You recently complemented Western Australia on making changes to payroll tax. What is the ARA’s position on payroll tax?

Russell Zimmerman: It’s a disincentive to employ people and we would like to see all states remove payroll tax as quickly as they possibly can. It’s logical to say that if payroll tax was removed, more people would get employed. If you’ve got a business and let’s say you’ve got a payroll of, let’s say $600,000, and you want to put another employee on, and you want to pay them $60,000 and you’re in NSW, all of a sudden you’re going to hit the – I think the threshold is $650,000 – you’re going to go over the threshold and you’re going to start paying payroll tax. Why would you want to do it? All of a sudden your costs increase. So it’s a disincentive and our view is it should be one of those taxes that state governments should be working toward removing completely…


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