The Australian Retail Market

Every now and then, I receive an email from an Australian reader asking for advice about which foreign retailers I’d recommend, or why the local retailers are so poor. It’s not something that I often write about, as I don’t believe many retailers offer good value and it makes sense for buyers to look offshore. This has led me to wonder whether the local market was heading towards collapse. But lately, I’ve started to see some green shoots that make me hopeful for the future, and so today, I’d like to discuss the two sides of the Australian market.

Many people have heard that the Australian market is a small one, and are sometimes surprised to learn that we boast quite a few specialist retailers. Most major cities have two dedicated B&M stores, but I would not say the market is well-served. My experience of local retailers has been generally poor, a theme that is reflected in discussions with other buyers, and it’s not surprising that most Australians prefer to deal with foreign retailers like La Couronne du Comte, Goulet Pens, or Classic Fountain Pens. Dealing with foreign retailers involves a certain degree of pain — you need to think about time zones, shipping costs, exchange rates, and the inevitable wait for things to arrive (typically around two weeks) — but it’s often less painful than dealing with the locals. 

It isn’t always an issue of price, either. As any tourist will tell you, customer service isn’t exactly an Australian specialty, and local FP retailers are no exception. If anything, they are worse. My guess is that there is only enough demand in each city to support two retailers, and prices are largely controlled by distributors. There isn’t a great deal of competition when you have two retailers selling the same products to the same people at the same prices, but you also don’t have much space for new firms to enter and shake things up. You end up with a kind of stalemate, where both retailers have a stable share of the market. The losers of this are consumers, who don’t receive the benefits of competition in the form of lower prices or better quality service.

In my model of a consumer’s purchasing decision, I argue that buyers estimate how much value they will get from a purchase and compare this to the price. As long as the value is greater than the price — say, $300 of value on a $200 purchase — then they realise some benefits which I call surplus. In this example, it’s $100 of surplus. In general, retailers compete by trying to either push down the price or push up the value that they receive: they are trying to offer the buyer more surplus than another retailer, in order to get the sale.

That only works when the market is competitive. If it isn’t competitive — if you can only buy from one seller or the two sellers aren’t behaving differently from each other — then the retailer’s incentive changes. As long as value is greater than price, even by just $1, you’ll still buy the pen. You won’t drive across town to compare with the other retailer, because their price and service will be basically the same. They have no reason to maximise surplus. 

In fact, it’s expensive to increase the value a buyer gets from a purchase. Professional, well-trained staff members and large, spacious showrooms cost a lot of money. If you don’t need to increase the value, there’s no reason to provide these things and we can expect such retailers to have lacklustre service and small stores crammed with stock. 

Which is, frankly, exactly what you get from most Australian FP retailers. The worst offender, in my opinion, is the Pens de Luxe chain. More so than the other vendors, they project themselves as a premium, upmarket retailer. I’ve no real problem with a firm doing that, just as long as they are providing premium service to go along with it. Which they do not.

On my most recent (and probably final) visit, I was ignored for quite some time before interrupting the personal conversation of two young sales assistants and then received the most cursory service. To make matters worse, he lacked any real knowledge of the products that he was selling and provided some information that was simply wrong. 

This is not really all that unusual for retail here but what really irked me was the impression he gave that I was not good enough for the store, that I was wasting his time. It didn’t just irk: it made me feel angry, an impression that hasn’t dimmed in the months since it happened. As much as that burned, the economist in me wondered: I am a professional, I have a PhD and have consulted on projects worth more than a billion dollars. If I’m not good enough for you, who is? And what sort of business allows their staff to treat customers with such arrogance and smugness? Speaking to other Australians, I realised my experience was far from unique. 

It nonetheless contrasts with a visit to a Montblanc boutique around the same time. From their upmarket position, it’s easy to assume that the MB staff would share the haughtiness of Pens de Luxe, but nothing could have been further from the truth. I was dressed casually but was welcomed and treated with respect. Despite only wanting to buy a bottle of ink, I was offered a bottle of water and the opportunity to sit and write with an ink sample, to ensure that the colour suited me. The staff were polite, friendly, and professional. I felt exactly like every buyer of an FP product should feel, no matter which retailer they visit. 

So you can see why most Australians prefer to buy internationally and wait two weeks, rather than deal with someone locally and have the pen that day. And with an increasing number of buyers migrating to the online market, it certainly seemed like the local FP market was going to struggle. Once a few retailers start to disappear, life gets harder for the distributors, and their closure makes life even harder for the remaining retailers.

But I’ve begun to see some green shoots in the last year or so: new players in the market that exhibit a genuine passion for their product and an awareness of the importance of customer service. I’ll briefly discuss each of the four here, but hope to write more about them in later posts. 

The first and largest is Notemaker, who are primarily focussed on stationery but have a huge range of FP-friendly stationery. If you can believe it, most of the big retailers don’t actually offer decent paper products: they will sell you a broad, wet nib and a bottle of ink, but you couldn’t buy something like Rhodia to write on. I’ve simply no idea where people went before Notemaker entered the market, but they are arguably the dominant specialty stationery retailer in Australia right now (and the import agent for Rhodia and Clairefontaine products). 

BookBinders is another stationery specialist, newer to the community and still growing their range, but with a wonderful sense of the products that users want. They introduced pocket-sized Tomoe River notebooks before they were even available in the US, and will be stocking mini Iroshizuku bottles later this year. Their prices are quite reasonable, their service is excellent, and I’m excited to see what direction the business goes in. It strikes me as having a lot of potential. 

JustWrite are becoming a local, entry-level version of Goulet Pens. They stock a range of cheap Chinese and Indian pens, as well as some cheap ink (including the Australian Toucan brand) along with a lot of the tools that a tinkerer would otherwise have to import: loupes, micromesh, padded pliers, and the like. If I ran JustWrite, I’d be pushing hard to stock some more brands appropriate to this niche — Noodlers, Twsbi, Pilot Metros — and start to cultivate the growth of FPs in Australia. Enthusiasm certainly seems to be building and I can see a real opportunity in this for them. 

Finally, LarryPOST were my go-to retailer for Lamy products, when I still used Lamy. Not only do they sell individual parts for the Lamy 2000 (including nibs!), but they also carry Faber-Castell, Field Notes, Palomino, and Leuchtturm. Their service is stellar: I emailed them about a BB nib for my 2000 and received a quick reply saying they were no longer available; around six months later, I had an email saying they had managed to get hold of one if I was still interested. How many other retailers would do that?! I can see their range is building around a particular type of buyer and it’s exciting to see this happen.

These retailers have a few things in common: they obviously know their customer and are building their businesses around them. They are excited and enthusiastic about the products and are integrating with the online community. And they are targeting parts of the market that have been overlooked or rejected by the incumbents: people who have a passion for stationery and want options that are functional, interesting, and won’t cost them $500. 

They also threaten the incumbent market. Not yet, as they are playing in adjacent markets rather than directly competing, but I suspect it is only a matter of time until they have really figured out what their customers want, built their businesses and established their reputations. After that, the incumbents’ customers will start gravitating towards the entrants, lured by better product ranges, better service, and better value. 

I also suspect that they are a threat the established retailers don’t yet perceive. It’s not hard to believe the managers of a business like Pens de Luxe are focussed on cost management — on keeping things ticking over — and aren’t paying attention to broader changes in the market. But the demand profile is changing as more enthusiasts are joining the market, buyers who are generally younger, better-informed, and more willing to import from foreign retailers. The supply profile is changing as these new entrants join the market, build their reputation and understanding of customers, and gradually expand their product ranges. 

The incumbents will only survive if they can adapt to a market that is actually competitive, and learn to think about how they can provide real value to their customers. I suspect that this will be beyond some of them, and they will disappear. A sad thing, of course (though not so much in the case of Pens de Luxe) but also an opportunity for other firms to enter, and for the market to undergo renewal. With this on the horizon, I’m more hopeful than I’ve been for a long time.