Gouged. Cheated. Ripped off. Robbed blind. Taken for a ride. Whatever your term of choice, this is the reality facing Australian women who continue to purchase their beauty and cosmetic products on Australian shores. But who is to blame?

They say you can’t put a price on beauty. Well in Australia, apparently you can.

A gospel truth that, surprisingly, remains unknown to many, or is quite simply ignored, is that Australian women are being forced to pay sometimes up to four times more than their overseas counterparts for cosmetics, despite the high Australian dollar*.

An O.P.I. nail polish can be picked up in the United States for anywhere between $5-$8 USD, but will set you back $19.95 AUD in Australian stores.

A M.A.C. lipstick will cost you £13.50 GBP (approximately $20 AUD) and $14.50 USD on M.A.C.’s British and American sites, yet on their Australian site you will be looking at paying $36 AUD, a mark up of up to one hundred and fifty per cent.

L’Oreal’s ‘Pure Colour High Gloss’ costs $18.50 USD on their American website, but is being sold for $40 AUD online in Australia, more than double the price.

I could go on but you get the picture.

While Australians are clearly paying more, the reason why is not so clear.

It’s difficult to attribute the reasons to any one point in the retail cycle.

Consumers blame retailers, retailers point to the distributor, distributors will tell you it’s the wholesaler, and the wholesaler will accuse the manufacturer, who will point the finger at someone else again.

It is a vicious cycle that sees nobody willing to account for why Australian consumers are being hit hard with outrageous prices.

“There are a number of elements that come into play with regard to the variance in price between markets, including taxes, shipping costs, higher staff wages and retailer margins,” Alice Hampton, communications manager of Estee Lauder Australia explains.

It is true that Australia’s geographic isolation leads to higher shipping and import costs that are passed on to the consumer.

Stacey Lawson, the brand manager for Devcos International, whose main client is Priceline, says costs associated with shipping and taxes drive up prices in Australia.

“To set a recommended retail price you take into consideration the following: cost price, exchange rate, shipping costs, import duties, internal transportation costs, pick and pack costs and retailer margins,” she said.

Industry figures say the comparatively high cost of doing business in Australia is unavoidable. A product will often pass through several distribution points, with costs and profits being factored in at each stage. In a relatively more expensive environment like Australia, this can result in a sizeable difference in price by the time the product reaches the shelves.

In a recent submission the Productivity Commission’s inquiry into retail price differences, Myer states, “In Australia, retailers pay higher fixed wages, penalties, and conditions than in China, India and the UK. We pay higher rents than all other major countries in the world … As a result, our cost of doing business is higher and it is harder for Myer and other Australian retailers to compete on a world scale.”

Lisa Miller, the marketing and public relations manager for O.P.I. agrees, saying Australia is “an expensive market to work in”.

“Our prices are comparable with other countries where O.P.I. is sold once you factor in cost of labour, transportation to Australia and import duties. The standard of living in Australia is much higher than the US, so it is difficult to compare the two nations,” she says.

Ai San Beaumont, the marketing and public relations manager for La Prairie Australia, admits the strengthening of the Australian dollar and the devaluing of the American dollar has resulted in considerable price differences for cosmetics, but says it is a “pricing environment they have no control over”.

“There are costs that are built into the Australian pricing which are higher than comparable markets, including high labour costs, high rents, costs of product registration and repackaging to comply with Australian regulations, freight and import duties,” she says.

Australia has a small share of the world market, hardly featuring on the radar of some major manufacturers who therefore do not feel pressured to provide Australian retailers with the cheapest product.

“Many products and services have different prices in different regions and countries. Among other reasons, this may reflect differing costs, such as transport or retail costs or, alternatively, deliberate regional pricing strategies based on different supply and demand conditions,” according to a spokesperson for Australia’s consumer watchdog, the ACCC.

Global cosmetic companies have argued that geographic price disparities simply reflect the small size of the Australian market and associated marketing costs, which may result in retailers not being able to access as favourable prices for their imported goods.

“The marketing dollar goes much further in the US than in Australia as the costs to advertise are much the same but the audience is much smaller and the number of consumers and rate of sale is much less,” Devcos International’s Lawson says.

Australia is almost the same physical size as America, but with a population less than that of Texas.

This puts Australia on an uneven playing field with the US market, which is thirteen times larger and intensely more competitive, and one that provides consumers with many choices.

Retail analyst, Russell Wright agrees and believes the higher prices of cosmetics are dictated by the realities of a smaller market.

“It basically comes down to lack of choice,” he says.

“If you think about a developed country like the US, you will have 10-20 department stores, in the UK you will have 5-10, but Australia with a 22 million population only has enough for two. But the fact that you only have two means that there is no chance of someone threatening to stop your product. So Myer needs to have products from suppliers the same way David Jones does. If there were three, and one person was prepared to lower their prices that would create a more competitive market. But we don’t have that.”

And suppliers and manufacturers are fully aware of this, which is how they are able to manipulate the cosmetic retail market in Australia.

“Anecdotal evidence suggests there are some sizeable gaps, with Australian consumers on the wrong side of this equation. Given these products are highly brand-focused, and more or less identical across national boundaries, it is plausible that this is an example of international price discrimination, where the international manufacturer chooses to price at a higher level for Australian consumers because they believe the market will bear this,” Choice head of campaigns, Matt Levey says.

International price discrimination is a practice used by overseas brand owners, manufacturers and suppliers, who charge higher prices to Australian retailers relative to the prices they charge similar retailers in other regions. These comparatively higher prices are then passed on to the Australian consumer.

It is a strategy used to maximise profits, and it is sustained by a lack of demand from consumers and a lack of competitive rivals.

“If this is an example of international price discrimination, then it would be because international manufacturers have been able to maintain a separate market in Australia,” Levey says.

However, Wright believes such discrimination is driven by the wealth of a country.

“Australia gets discriminated against. It’s countrywide. It’s because we have sufficient people with wealth who are prepared to pay for whatever it is, that they can charge extra in this country. If Australia were a poor country, they wouldn’t be able to do that.”

Price differences in retail are not a new phenomenon. But the exponential development of the Internet and our increasing reliance on it has enabled price discrepancies to become more transparent to the everyday consumer.

While some women will continue to break the bank to buy a Bobbi Brown Blush for $58 AUD in Australian stores, when it retails for $25 USD in the US, and £18 GBP (approximately $26 AUD) in the UK, others are becoming more savvy and sourcing cheaper alternatives online and overseas.

“I am lucky enough to have a friend who lives in America who can purchase cosmetic items for me. I look them up online and send her a list, and even after she sends them to me via post, I’m still at least over half in front,” make-up artist Natasha Donnellyi says.

“It wasn’t until I travelled to New York last year, that I became aware of the ridiculous mark up. I do not think it is something that is widely known throughout Australia, otherwise people would not be able to walk into Australian stores and pay the prices they actually do. Since travelling overseas, I have not been able to go into Mecca, David Jones or Myer in Australia and justify any of it. We are paying something like three times the amount. It is full blown highway robbery.”

Cheri from MsCritique.com, an Australian lifestyle and beauty blog, has a similar view and says she regularly checks out overseas e-shops and “can’t believe the difference in what we pay”.

“The Internet has completely changed the game for retailers. I think consumers are already starting to shift their behaviour in the way they shop; we’re just waiting for local retailers to catch up.”

Globalisation has led to an increasingly integrated marketplace for retail and consumers are no longer prepared to pay a premium price locally when it could be bought cheaper online from overseas.

Wright agrees and says he believes the Internet will hopefully “erode some of this pricing that costs Australian consumers so much more”.

Traditional sales channels for cosmetic retail in Australia are being increasingly challenged by the growth of online retail, due to a strengthened Australian dollar, improved access to mobile Internet technology and Australia’s national broadband rollout.

And brands know this.

“E-commerce both from a brand perspective and a retailer perspective is becoming increasingly popular and will be an avenue that continues to grow across the various multimedia and social networking platforms,” says Estee Lauder’s Alice Hampton.

The continual growth and increasing availability of online shopping in the future will intensify the competitive pressure put on retailers to entice consumers to continue to shop in Australian stores, through offering lower prices, improved service, a better overall shopping experience or a combination of these factors, to counteract the shift to online shopping.

But is this really enough?

While the underlying reasons for why cosmetic products cost more in Australia can be explained by factors such as domestic cost structure impediments and the size of the Australian market, retail analyst Russell Wright argues that stores need to do more to source their products more cheaply from suppliers or risk losing customers.

“It all comes down to bargaining power. If Myer and David Jones can’t persuade the supplier to sell cosmetic products for a more reasonable price, how else is it going to happen?” he says.

Wright believes retailers like David Jones and Myer need to put more pressure on suppliers to reduce the price premium paid by Australian consumers, to prevent the leakage of sales from department stores to online retailers and to be more competitive on a global scale.

“The more they lose sales to Internet and online retailing, the more pressure they can bring to bear on the supplier. The suppliers make more profit, the more they sell through Myer and David Jones, and so they can’t just disregard Myer and David Jones totally. They have to think about it from a dollar point of view.”

*****

Despite approaching 57 cosmetic companies operating in Australia only 21 responded and just 4 were prepared to go on record, highlighting the sensitivity of the topic.

* The Australian dollar is currently approximately at parity with the United States Dollar.

Published on www.seeseeeye.csu.edu.au 20/08/2012