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Australia’s eBay shopping grows strongly

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American companies drive Australian journalists to distraction with their refusal to provide any detail about their local operations.

If a US company condescends to hold a “latest quarter results” press conference in Australia, there’s no point in turning up. The question “how did your performance in Australia this quarter/year compare to last year?” will be answered by the bland statement that “we’re not required to report on this individual geography” (or some similar bromide).

Of course, with a rising Australian dollar, an economy that remained if not buoyant then at least more robust than many countries, steady employment and growing awareness, any other result would have been a spectacular failure.

The question is how much we can interpret from eBay’s results.

Australia is, at best, a minor market. With net revenues for the quarter topping $US2bn, the common rule-of-thumb that Australia probably represents three per cent of a multinational’s global revenue suggests local income in the vicinity of $US60m.

Let’s expand that number to $US100 (about 4.4 per cent of eBay’s quarterly total): it still means Australia is so small a market that it doesn’t get detailed in SEC filings, and that whatever statements eBay makes about Australia cannot be verified against any objective published data.

According to reports in the Sydney Morning Herald on 24 January, eBay CEO John Donahoe said that Australia, South Korea and Britain grew more quickly than the company’s overall global revenue growth of nine per cent and merchandise volume growth of 11 per cent.

But what exactly does this mean down under?

If its revenues are around the hundred-million mark, then its revenue growth in Australia was around nine million dollars.

Although eBay’s minor and unverifiable statement received front-page treatment, the company is a retail minnow, right now incapable of significantly affecting the performance of major retailers.

The mouse swallows the elephant

The national retail trade data released in November 2010 has been widely cited as evidence of the impact of companies like eBay and Amazon on Australia’s retail trade.

Over the 12 months to November 2010, the Australian Bureau of Statistics’ (ABS) Retail Trade, Australia publication assesses total retailing as being worth more than $242bn dollars.

Working out the sales volume eBay Australia might generate isn’t easy because of its tiered commissions. Rather than trying to model the tiering, I’m going to assume that between low-price and high-price products, eBay generates commissions of about 3.5 per cent of all sales. Its $100m in Australia (remember that this is only my estimate) would therefore stand as a proxy for around $2.85bn of quarterly sales.

That would make eBay sellers a moderate slice of total retailing – 4.64 per cent of the total retail trade market.

If we exclude those, and focus merely on non-food retailing (the ABS segments are household goods, clothing, department stores and other), eBay sellers have carved out nearly 10 per cent of the available market.

Bankrupting the government

Then there’s the matter of GST – Australia’s Goods and Services Tax which isn’t collected for international purchases below $1,000.

The total GST applicable to eBay purchases (whether collected or not) would be less than $300m: even ignoring the controversial sub-$1,000 exemption, it’s not going to bankrupt the government.

And that’s only if we assume that all the business going through eBay Australia is purchased from offshore sellers and that all of it is either under $1,000 or the seller and buyer are ignoring GST.

Here, again, the lack of hard data about eBay’s activities is frustrating. There is no reliable way to estimate the Australia/international split in buying behaviour.

All we know is this: not all Australian transactions are with international sellers.

And I have to confess, at this point, that all my assumptions, calculations and models may be completely wrong.

The opacity of eBay’s reporting is frustrating in another way: how much does the performance of a local subsidiary reflect customer buying behaviour in a particular geography?

As with all the other unknowns in the eBay accounts, the answer is that we don’t know. If an American vendor is advertising a product for sale through eBay Australia, and the purchase is made by an Australian-registered eBay user clicking “buy it now” from a sale advertised on eBay.com.au, in which geography is the sale reported?

Although eBay said that Australian growth ran ahead of the global revenue growth of nine per cent, the only number we have is that global number.

If I assume that only half of the eBay purchases made by Australians turn up in eBay’s Australian subsidiary, then using that figure of 9% growth suggests that commissions generated in Australia were worth perhaps $US18m. At the 3.5 per cent average commission I estimated previously, then all eBay purchases by Australian customers grew by about $50m for the quarter.

That’s less than the change in value of the household goods sector. In the year to November 2009, that segment was worth $42.698bn; in the year to November 2010, it was worth more than $42.781bn – a relatively flat $83m.

This reflects far more than merely the “eBay factor”. Remember that this reports the value of the sector, not the turnover of inventory.

As well as making offshore destinations more attractive, the appreciation of the Australian dollar has, at least in markets in which prices are allowed to move with the currency, made imports cheaper. So the bricks-and-mortar retailers can move more boxes without enjoying a corresponding growth in income.

eBay is having an impact. Without usable data from the online store itself, that impact is impossible to assess – but I believe it’s overstated. The brand has mesmerized Australian journalists, retailers and analysts alike. ®

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