The A to Z of what Amazon could mean to Australian retail

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Amazon for Australia

After months of rumours, retail behemoth Amazon has confirmed its imminent arrival in Australia, bringing widespread speculation about its potential impact on the Australian retail landscape.

In April, the US shopping giant issued a press release confirming it was actively seeking staff and looking for a warehouse site, with real estate sources telling the Sydney Morning Herald a deal has already been done on land at the Oakdale Industrial Estate in Sydney’s Eastern Creek.

Amazon is yet to confirm that transaction and remains tight-lipped as to the scope and specific focus of its Australian plans. But whatever those plans may be, Amazon looks set to hit the ground running in 2018, and here are just some of the impacts they may have…

What Amazon offers

Amazon is widely credited with changing the US retail landscape beyond recognition, with the ABC noting they currently account for $1 out of every $2 spent via e-commerce in the US.

Having started in only 1994 as an online bookstore, the company rapidly expanded into e-books, electronics, toys and clothing, then video and content streaming before more recently opening Amazon Fresh grocery stores boasting fast delivery.

In addition to e-commerce, they offer a delivery service entitled Amazon Prime that sees US customers pay $100 per year for free and fast delivery, with the ABC noting 60 million US households have signed up.

This year they are set to open a prototype grocery store in Seattle called Amazon Go which offers a checkout free purchasing experience, allowing shoppers to simply scan items through the Amazon app then “grab and go”, with purchases billed to their Amazon account.

Meanwhile this week the company announced the acquisition of 400 upmarket grocery stores across America in a $14billion takeover of Whole Foods Markets.

Already Amazon has an estimated $1billion revenue reach into Australia’s $300 billion retail landscape courtesy of items shipped from overseas.

How they will likely roll out

Although no specifics have been released, the widespread consensus is Amazon will commence operations from a massive 93,000 square metre fulfilment centre based in Sydney, targeting products such as electronics first.

They will do so under their mantle of “low prices, vast selection, and fast delivery”, with the possible addition of the Amazon Prime delivery subscription, which could be a major game changer for Australian retail. It could also be further honed through their one-hour delivery option called Amazon Prime Now.

Products with a long shelf life may be swiftly followed by their grocery arm, Amazon Fresh.

In their official statement Amazon noted: “Amazon Web Services launched an Australian region in 2012, we launched a Kindle store on amazon.com.au in 2013 and we now have almost 1000 employees in the country. The next step is to bring a retail offering to Australia, and we are making those plans now.

“We are excited to bring thousands of new jobs to Australia, millions of dollars in additional investment, and to empower small Australian businesses through Amazon Marketplace.”

Who could be impacted

With electronics the most likely products set to hit the Amazon shelves first, the Sydney Morning Herald notes major retailers and department stores will be first in line to feel the initial effects.

“The impact on the bigger retailers such as Myer, JB Hi-Fi and Harvey Norman, and the industry in general, will be large. Analysis by Credit Suisse shows Amazon will likely reach a better than 5% market share in many retail categories within five years of arriving in Australia.”

They continue, Amazon’s roll-out strategy in other countries has been aggressive, relentless and successful. They sell more non-food items in Germany and the UK than any other retailer, and accounted for an estimated third of all retail growth in those countries in 2016, according to Morgan Stanley research.

Should Amazon also choose to instigate their grocery arm in Australia the effects could be much greater, challenging the nation’s two major retailers Woolworths and Wesfarmers (Coles).

News Limited explains Amazon dwarfs these Australian retailers in size and scope, making more revenue than the two combined, while The Australian notes Wesfarmers boss Richard Goyder, whose retail chains include Coles, Bunnings, Target and Kmart, has repeatedly warned that Amazon will “eat all our breakfasts, lunches and dinners”.

The industry is so jittery, Woolworths shares plunged 3.5% this week on the back of news Amazon had struck a deal to acquire 400 Whole Foods stores in the US.

Meanwhile the Sydney Morning Herald cites other countries as an example of how Amazon will stake their claim.

“Amazon launched in Spain about five years ago, investing about $A700 million, including a head office, fulfilment centers and a tech hub for research. It now has 1000 employees and will be hiring another 600 this year. Customers in Spain have access to 175 million products and the Prime Now service which offers delivery within one hour.”

But will Australia with its smaller population and greater distances yield similar results? Well, according to experts these factors, along with higher wage costs and better working conditions may present a very real challenge.

What retailers need to know

The Australian retail industry’s reaction to the news of Amazon’s arrival has been mixed. ABC notes Harvey Norman Founder Gerry Harvey has vowed to fight, but research illustrated by the Huffington Post shows others remain unfazed, unprepared and even unaware.

“In fact, almost half of the 505 Australian retailers surveyed in new research from Commonwealth Bank were unfazed about the giant online goods distributor’s arrival down under… Almost a third were unaware they were coming at all and, of those who did know, only 14 percent currently have a business plan in place to be able to compete with Amazon,” the Huffington Post states.

But they should, according to experts. PwC Australia’s national leader for digital services John Riccio told the ABC, Australian retailers need to reinvent their business models to fend off the threat, and automation is key.

“It’s critical not only to retail, it’s critical to any industry – digitisation of processes, or elimination of processes, through automation, is a critical way to get your costs down,” he said.

Amazon also has an obsessive focus on customer data, unmatched by any company in Australia, if not the world. John Riccio said Amazon knows how each of its customers behaves.

Meanwhile National Manager of Retail at Commonwealth Bank Australia (CBA), Jerry Macey, told The Huffington Post the key for Australian retailers looking to survive in a business environment that includes companies like Amazon is to innovate their business procedures to find new ways to provide for their customers.

“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.”

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