But 20 years of government competition and productivity reviews have recommended abolishing parallel import restrictions. Choice spokesperson Sarah Agar says parallel imports boost competition and cut prices. “Australians have been slugged with the ‘Australia Tax’ for many years,” she says. “Parallel importation allows Australian consumers to purchase legitimate products [much cheaper]”.
In response to concerns that resellers will lose business, Agar says that’s a factor of international trade: “Just like a company can import its inputs from markets that are cheapest, so should consumers be able to access their products.”
Vendors in the firing line
PCS Australia CEO Syd Borg says the overseas offices of vendors are largely to blame for grey market imports making their way into Australia, as his competitors can buy direct and import by the container for less than he can through authorised Australian suppliers.
“A lot [of vendors] tend to ask for a premium price on their [Australian] products to cover losses in other countries, particularly in Asia, to compete against copies,” Borg says. “The problem we have is that the population and size of the [Australian] market isn’t huge, but Asia is massive and they buy in massive quantities and then get favourable pricing.”
Borg says parallel importation “has gotten worse in the past five years, and maintains that “I won’t play that game … I loyally back the local distributor.”
The growth of parallel imports pushed Borg to diversify into services and new markets, for instance serving education with digital lecterns and 10-finger multi-touch displays straight out of Minority Report.
He says that while most vendors turn a blind eye, HP is “doing their utmost to keep at bay the issue”.
“But it’s such a monster, how can they control it? They can’t. All they can do is assist the channel.”
Distribution Central managing director Nick Verykios says local vendors’ onerous requirements might push resellers to buy offshore.
“These resellers say, I don’t want to be part of the vendor channel, I just want their kit,” says Verykios, adding that Distribution Central didn’t bypass authorised channels.
Verykios says more parallel-sourced goods have started to come from the US and Europe rather than Asia and the Middle East in the past few years. Overseas vendor offices are “fudging” place-of-sale data to ship goods outside their territory and into Australia, he says. And wholesalers such as Distribution Central are being cut out, but not because of parallel imports.
“Absolutely we’re being cut out because of global distribution agreements”, especially when vendors shift authorisation to multinational distributors that resellers don’t want to work with. “But we get brought back in with services,” he says.
Verykios advises resellers tempted by a quick buck to consider, “They’re in for a world of hurt and by encouraging it, look behind your shoulder – how many deals are you getting cut out of?
“It will happen and it’s only a matter of time before you get screwed.”
Breakout: Grey, parallel or drop-ship: what’s actually legal?
Much of the discussion on parallel or ‘grey market’ imports turns on arcane law, specifically s.123 of the Australian Copyright Act (1968) on trademarks. Parallel imports are genuine goods imported by someone other than the licensed supplier.
As the Advisory Council on Intellectual Property says: “A concise and exhaustive definition of parallel imports is … elusive. The problem is that while trade … and brands may be global, trademarks are national and may be owned or used by different people in different countries.”
In everyday parlance, a parallel import is a new good under trademark but unauthorised by the Australian trademark owner for distribution. A grey market good may be secondhand or “refurbished” (the importer might not indicate this).
Drop-shipping occurs when a good ordered from a local reseller is dispatched from a supplier; it may bypass local, authorised channels.
Individuals have long imported products for personal use. Commercial parallel imports were enabled in changes to the Copyright Act in the 1990s covering books and music, followed by software in 2003.
Judgments in Paul’s Retail Pty Ltd v Lonsdale Australia, and Electrolux Home Products Pty Ltd v Delap Impex Kft are instructive for how the trademark owner was able to restrain parallel importers using trademark law.
Government reviews made over 20 years advocated removing parallel import restrictions in order to free competition and better serve consumers.
In April, the Harper competition review was the latest to recommend abolishing parallel import restrictions.
The Australian Competition and Consumer Commission says businesses reselling parallel imports “should ensure they don’t mislead consumers about the origin of the goods, their refund and return rights (consumer guarantees) and comply with the Australian Consumer Law”.
For resellers considering such trade, the ACCC is stern: “Consumers have rights under the consumer guarantees rights against the Australian retailer selling parallel imports (not the local manufacturer). Further, if the product was purchased in Australia, a manufacturer’s warranty that the manufacturer may offer may not apply to goods that have been parallel imported.”
Consumer watchdog Choice says this means if something goes wrong, you’re on the hook; don’t expect the vendor to help you out.
Breakout: No stopping King Kogan despite a stumble
Not content with low-margin electronics, Kogan expanded into consumer goods such as sports (under the Fortis brand), camping (Komodo), women’s and men’s personal products (Estelle, Scharfen), travel (Orbis), babies (bubbli) and pets (Pawever Pets).
He also has a stake in furniture e-tailer, Milan Direct. And he’s recently lined up in his sights the grocery duopoly, launching Kogan Pantry with 600 products from the likes of Colgate and Gillette that is also presumably parallel-imported, promising to halve the weekly shopping bill on a basket of 20 items.
But Kogan has made missteps, such as when his mobile virtual network operator (MVNO) went pear-shaped following the dissolution of ispONE, which was wholesaling Telstra services to Kogan.
Speaking to Good Weekend last year, Kogan’s philosophy crystallised: “The moment you start having relationships with these intermediaries, you become their bitch.”
While he might be the bane of resellers and retailers alike, Kogan has supporters. Speaking at the American Chamber of Commerce in March 2013, former IBM Australia managing director Andrew Stevens, said Kogan’s $149 Agora smartphone was at “a crazy price; but the strategy works”.
“It’s because Ruslan Kogan understands his customers and is obsessive about online retail,” Stevens said.
“Kogan collaborates with customers to identify products to bring to market. Kogan learns what products and niches are hot or emerging and deploys analytics to sniff out gaps that no one else is filling.” In 2010, Kogan launched LivePrice, a private crowdfunding site to cut his risk commissioning new products by inviting consumers to bid on them before they were made. The earlier consumers bid (therefore the greater risk they took) the cheaper the price they received compared to the final retail sticker.
Technology lawyer Kay Lam-MacLeod says there’s a market for Kogans.
“Kogan is No.1 in parallel importing of electronics; he’s done well out of it and I can see why, but people recognise that if you buy something that’s Kogan-branded it won’t be the same specs for the same product you might buy from a different brand,” MacLeod says.
“There’s room and clearly demand for it. And if you buy something that does the job and is half the price, then yay for you.”
* Disclosure: The writer collaborated with Andrew Stevens on his Amcham speech and sits for too many hours a day in a chair bought (at full retail) from Milan Direct. Nate and Ruslan are also connected on LinkedIn, not that it helped to compile this story.
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