The online shopping site expects to increase its offerings to as many as 3 million items within the next year, featuring goods at prices it claims are 5-10 per cent lower than those touted by the websites of the overseas shops. BusinessDay understands the group is also in talks with US brands such as Macy's, Banana Republic and J. Crew, with future tie-ups with British luxury brands to follow. Australia Post will use its national network and warehouses to deliver the goods at competitive rates. Tarazz, with warehouses in the US states of Delaware and New Jersey, will have a local call centre in Australia to supplement warehousing provided by Australia Post. "The main purpose of this venture with Australia Post is to help them get operational excellence in the cross-border market," said Tarazz founder Tom Kiing, who is also managing director of IT investment firm, Bridge Capital. "They're very strong in the domestic market so there is a lot of interest to build operational excellence in the international market." Postal push

Australia Post is already active in online delivery, with its farmhousedirect.com.au service for farmers and producers. It also offers an eBay flat-rate product aimed at local retailers. A spokeswoman for Australia Post confirmed the deal, while refusing to release financial details. "We're committed to providing Australian consumers with trusted parcel delivery services, no matter where they purchase their items from," she said. It's going to go down like a lead balloon with local retailers However, the creation of the website is likely to dismay so-called bricks and mortar retailers, who are struggling to cope with online competitors from home and abroad.

The relatively high cost of local shipping has been singled out as a burden holding back local online retailers - while the latest tie-up might add to that burden. A Black Chrono watch bought directly from US watchmaker Fossil's Australian site costs $149. Using Tarazz to purchase it through another shop, Forzieri, the watch will cost $104.50. The Lego Star Wars Millennium Falcon toy costs between $230 and $250 at Big W and Myer, while buying it from WalMart via Tarazz would cost $140.11. Tarazz's large-scale import model was developed and launched in Singapore. Mr Kiing said he was approached by friend Ahmed Fahour, Australia Post's chief, about launching the service in Australia. 'Radioactive' Online analyst Mr Arnott said the combination of Australia Post and Tarazz would stoke resentment in some quarters.

"To have Australia Post and by proxy the federal government commercially backing such a venture is going to go down like a lead balloon with local retailers," he said. "It's politically radioactive." The government's $1000 GST-free threshold on goods bought overseas and then imported has further undermined the sector beset by high costs and antiquated business models. Major retailers, such as David Jones, Myer, Harvey Norman and JB Hi-Fi, have been forced to issue profit downgrades amid weak consumer sentiment and the drift by shoppers to online. Online sales, meanwhile, have grown 15.5 per cent over the year to April for a value of $11.1 billion, compared with growth of only 4.1 per cent in traditional retail. International sales are up 13 per cent year-on-year during the period, according to National Australia Bank's online retail sales index. While Mr Kiing concedes that local retailers might be concerned at yet higher volumes of goods coming into the country, the business will eventually open up to local retailers wanting to sell their goods abroad by the middle of next year.

Loading However, to grab that opportunity, Mr Kiing said local retailers would have to overcome their reluctance to selling through second parties, a common approach taken by retailers in the US and other markets. Mr Kiing sits on the board of mobile phone technology group Jumbuck Entertainment and Melbourne IT, the largest domain name register in Australia. Tarazz employs about 20 people in Australia and Singapore, and plans to increase local staff as demand for services grows.