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27
Nov

Amazon Australia has arrived: what this means for Australian retailers

Amazon Australia and its effect on Australian retailers

It’s here. Dubbed by some as the “Death Star” of retailers, it appears that Amazon slowly started adding items to their Australian site on 23 November – the day before Black Friday  – with sellers being told to prepare to take orders on that date. While Amazon are calling this a “testing phase”, and are for the moment remaining silent on the official launch date, this move will no doubt have retailers nervously wringing their hands in the lead-up to Christmas.

So what does the official arrival of Amazon mean for retailers? Will it devastate the industry, or could it be a much-needed boon in a time that is already fraught with economic challenges? The answer lies somewhere in between.

Are retailers prepared for Amazon?

The truth is, retailers have been aware for some time that Amazon would be descending on our shores this year, but they haven’t been doing much about it. In March, the HuffPost reported that over half of Australian retailers surveyed were unfazed by the arrival of the retail behemoth, and only 14% had a business plan in place in order to compete.

Jerry Macey, national manager of retail at Commonwealth Bank Australia, said cultivating an innovation culture was the best chance Australian retailers have for competing in a post-Amazon era. “We don't quite know what [Amazon are] going to land with yet. That is why we're suggesting that an innovative culture is probably the way to combat something that you can't see yet,” he said. “The best way of coping is being agile, being ready, being well planned.”

Could Amazon hurt the Australian retail industry?

Amazon is predicted to gouge a $12 billion stake of the Australian retail pie within the next decade, and, according to Morgan Stanley, department stores are set to be the hardest hit. Just as Amazon has successfully taken market share from US department store giant Walmart, Myer, David Jones and Kmart are expected to suffer similar losses, with Morgan Stanley predicting that Myer will lose 15% of sales in the next 10 years.

There are fears that Australian retailers simply won’t be able to compete on price, despite some retailers claiming otherwise – a claim that Michele Levine, CEO of Roy Morgan, called an “unrealistic stretch”. “Price war or no price war, Amazon will beat any Australian retailer on price,” she says. Considering Amazon is launching its store on Black Friday, it seems reasonable to assume that Amazon will indeed be enticing people to the platform with heavy discounts, at least initially. According to IBISWorld senior industry analyst Kim Do, Amazon "intends to challenge domestic retail prices by offering items for 30 per cent less."

Morgan Stanley, however, don’t believe there will be a long-term strategy. “We believe that Amazon won't rebase prices in Australia,” said Morgan Stanley’s Thomas Kierath. “Australian retail prices have reduced considerably in recent years and are now only at slight premiums to the US, so we don't see Amazon compressing Australian prices.”

There’s also speculation about how disruptors like Amazon Prime, which promises unlimited two-day shipping for an annual subscription fee ($99 in the US), will affect online retailing. Australia’s size and low population density, however, pose significant challenges in terms of rolling out such a service in Australia, which may mean we won’t have access to Prime for some time – and even when we do, it may be only limited to metropolitan areas and be more expensive than in other countries. As of yet, Amazon have made no announcements about if and when it is planning on bringing Prime to Australia.

Could Amazon help the Australian retail industry?

There are those who are more optimistic about Amazon’s arrival, saying that Amazon will open up opportunities for Australian retailers. Research by investment bank UBS suggests Amazon may induce a more rapid uptake of online shopping, which local businesses will also capitalise on. They predict the rate of growth of online sales in Australia will double once Amazon starts trading.

There’s also excitement about Amazon’s services for sellers, which include Marketplace, where retailers and small-to-medium enterprises (SMEs) can sell their products to customers on Amazon for a $49.95 monthly fee plus a 6–15 % referral fee (depending on the product), and Fulfillment by Amazon (FBA), where Amazon takes on some of the logistical factors of the business, including storage, packing, shipping, returns and customer support.

“Contrary to what industry observers have predicted, the majority of Australian SME retailers see Amazon as an opportunity for growth, rather than a threat,” said the Australian Retailers Association's executive director Russell Zimmerman. “In fact, many believe that Amazon will help them reach more customers, and believe Amazon Marketplace will provide an additional revenue stream.”

In an article for the National Retail Association, senior consultant of SAS Group Lisa Carter argues that the key to retailers’ success lies in their ability to truly understand their customer and successfully differentiate themselves. “It’s quite the paradox that the more retailers and consumers embrace e-commerce, the more we also embrace those scarcities like individualised service, sincere human connection and attention, and the ever-evolving consumer experience – all things that simply cannot be automated,” she says.

Amazon is here: are you ready?

There’s no denying that Amazon’s arrival will cause a massive shake-up of the Australian retail landscape, and we’ll likely see some of the big players take significant hits in the coming years. Those who survive and thrive will be the ones who embrace innovation, and focus on creating a fully realised, omni-channel experience for their customers.

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