By Rebecca Kennedy
For months, news of Amazon’s imminent arrival down under caused little but a blip on the Australian retail radar.
Experts noted local business was either unaware, unfazed or totally unprepared for how the e-commerce behemoth could shift the shopping landscape.
That was until June 19, when a seemingly innocuous announcement that Amazon had acquired 400 US Whole Foods stores saw four per cent wiped off the share value of Australian grocery giant, Woolworths.
So what’s the go with Amazon in Australia? How will they roll out? And why the sudden realization this could be a very real threat?
The A to Z of Amazon
Founded in 1994 amidst entrepreneur Jeff Bezos’ regret he hadn’t cashed in on the dot.com boom sooner, Amazon is widely credited with changing retail beyond recognition. It started as an online bookstore, soon expanded into DVDs, championed e-books and became a global marketplace for electronics, toys, clothing and more.
ABC News notes Amazon currently accounts for $1 out of every $2 spent via e-commerce in the US.
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 further noting 60 million US households have signed up.
They have a grocery arm entitled Amazon Fresh, with delivery services in Tokyo, the US, London and Berlin.
Meanwhile 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.
Then there’s the recent acquisition of 400 US-based Whole Foods grocery stores, indicating Amazon is set to make a concerted push beyond e-commerce and into the bricks and mortar realm.
In Australia, Amazon already has an estimated $1 billion revenue reach into Australia’s $300 billion retail landscape courtesy of items shipped from overseas.
When will they arrive?
Always reluctant to reveal their plans, Amazon finally confirmed months of speculation in April noting it was planning an Australian arm, actively looking for staff and seeking a warehouse site for a 2018 opening.
“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,” Amazon explained.
“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.”
But no further detail was forthcoming. Rumor soon spread the company had settled on Sydney for a massive 94,000 square metre fulfilment centre, with the Sydney Morning Herald speculating the Oakdale Industrial Estate in Eastern Creek was the agreed location.
Still, their plans on how, what and who may be in their firing line remain a tightly guarded secret.
How they will roll out
Under their mantle of “low prices, vast selection, and fast delivery”, Amazon is likely to target electronics first 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.
The Sydney Morning Herald says this positions major electronics retailers and department stores on the front line of the Amazon attack.
“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 here, the effects could be much greater, challenging the nation’s two major retailers Woolworths and Wesfarmers (Coles).
News Corp 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”.
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, fulfillment 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.
Should retailers be worried?
The Australian retail industry’s reaction to Amazon’s arrival has been mixed. The ABC notes Harvey Norman Founder Gerry Harvey has vowed to fight, but the Huffington Post says 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.”
But they should be, 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 is renowned as a trailblazer in the technological field. It has been the beacon of innovation in e-commerce, is one of the initial employers of robotics in its fulfilment centres, has rolled out a checkout free prototype at Amazon Go that takes mPOS to a new level, and is a major proponent of drone delivery.
It also has an obsessive focus on customer data, unmatched by any company in Australia, if not the world. John Riccio explained, 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.”