What to expect about Amazon’s impact in Australia
First off, what do we know so far?
Rumours. Whispers. Speculation. Will it launch by Christmas? Will it launch next year? Will it use kangaroos as delivery workers? Are Australians going to start saying “Amzz” instead (please, no).
We know it’s happening, and soon. Amazon has secured a lease, hired a director, and is setting up shop.
It always starts in Melbourne…
Like the country’s original capital city (don’t fight me, Sydneyers), Amazon is opening up their first fulfilment centre in the greater Melbourne area, beginning in Dandenong South. The 24,000 square foot centre will be in the Pellicano M2 Industry Park - easily accessible to the South Gippsland Highway, Monash Highway and Eastlink.
A couple of pros: Melbourne’s a pretty strategic location along the Boomerang Coast, meaning shipping north to NSW and west to South Australia should be pretty fast. Though we don’t know exactly where future facilities will be, we can probably guess that they’ll be further north. It might still be a while before anyone gets to Perth, but what else is new?
New fulfilment centres generally means new local jobs working in warehousing and logistics...and new traffic. If you’re in the Dandenongs, you might need to make some adjustments to your commute. (It’s not a big win, but at least you get to listen to more podcasts! Check out these podcasts about entrepreneurship).
Amazon is the largest retailer in the world
In August of this year, it was valued at US $500 billion, with only Apple, Microsoft and Google in the lead. Like Khaleesi, remaining unscathed in the flames, Amazon was one of the only major online startups that managed to survive during the dot com bust of 2000.
They’ve since grown into one of the biggest (if not the biggest) omni-channel retailers. In their robust US store, they offer not only a marketplace for products, but a web hosting service, house cleaning services, smart home functions with products like voice-controlled Alexa and everything she’s compatible with, fresh food and household supply delivery, ticket sales for events, TV, book and other media subscriptions through Prime and Audible, credit card banking services, Amazon Kindle e-book readers and tablets, and B2B wholesale services.
They’ve reinvented the game, and are crushing the competition. In the US, 43% of all online sales go through Amazon.
What changes are going to happen for Australian retailers?
Amazon is going to be competing on price and volume
One of the biggest changes the Amazon marketplace brings to the table is its lower profit margins and pricing transparency. Because consumers can compare similar products side by side, anyone who’s selling something standard will likely have to start dropping their prices.
As they’re settling in, they probably won’t be competing on range or delivery
Amazon’s three key advantages for consumers are competitive and transparent prices, range of products and delivery speeds. While they’re just starting out in Australia, they’ll be focused on getting their feet on the ground, selling a comparatively smaller range (compared to, say, the US market) at lower prices.
Amazon is also bringing Prime features, including Amazon Music. Because the Australian music cluster is such a tight and well-connected one, musicians and producers might need to rev up their promotions or try to get on Amazon themselves.
It will take them a little while to get into all of the niche markets to fill out their range, and to deliver faster than the established postal services. But they’ll get there.
Amazon is known for its constant innovation. As Huffington Post writes:
“One example of this is Amazon's recently unveiled plans for "multi-level fulfillment centres". These will function as warehouses but take the form of skyscrapers, where drones pick up and drop off packages from all floors of the building. If successful, these new centres will allow Amazon to locate its warehouses in the heart of high-density cities, cutting down drastically on delivery times.”
Current Australian retailers who offer niche products and have a strong focus on branding probably won’t feel the pinch of Amazon the same way department stores or highly elastic goods will. Stores like JB-Hifi, whose product range will likely be sold on Amazon for less, and Myer, whose customers might be able to fill up a full basket with similar if not identical products online, will probably feel the brunt.
Amazon is going to offer its marketplace, Prime, and more
The Amazon Marketplace and Amazon Prime media services will definitely be rolling out.
What’s less certain (though really, it’s probably just a matter of time) is whether Amazon Prime Wardrobe, Amazon Fresh, Amazon Go and Amazon Restaurants will also be rolling out.
Amazon Prime Wardrobe is a service that sends clothing delivery each week to subscribers, who then try on new outfits and return anything they don’t want to buy for free.
Amazon Fresh is a fresh food delivery service. Amazon bought Whole Foods in the US, and could have its eye on some smaller grocery stores in Australia to start offering this service.
Amazon Go is Amazon’s attempt (still testing) at physical grocery stores. You sign in on your phone, scan what you’re taking, and walk out without any sort of human representative or checkout process. This kind of retail can be hugely disruptive for not only supermarkets but any kind of brick-and-mortar chain retail if it’s successful.
And Amazon Restaurants, testing currently in London and New York, is Amazon’s version of Deliveroo and other hot meal delivery services. This could be especially disruptive in Melbourne, Sydney, Brisbane and other foodie and nightlife cities.
Amazon will probably be somehow involved in almost every online shopper’s life
Not everyone will use Amazon for every purchase, but a recent survey showed that a whopping 90% of people who shop online will use Amazon at some point.
This could mean buying items directly, researching items that are out there, getting a sense for what prices are competitive, reselling products, or shopping in other countries. As a merchant, you should think about what ways your customers will be using Amazon in relation to your product: discovery, comparisons, conversions, or all of it?
There’s still room for you
Economic experts offer wildly different views on what’s going to happen. Morgan Stanley thinks that Amazon will take a $12 billion knife to Australia’s retail sector. Citi estimated that by the second quarter of 2018, Amazon’s share could be just $200 million, or 0.2 per cent of total retail sales. If history is any indicator, that share will probably grow.
But that number indicates that there’s still plenty of room for other retailers. After all, Ebay does compete on price and range and has been in Australia for years without knocking everyone else out of the water.
Retailers who have built their business online can use this opportunity to sell on Amazon. Shopify has made their Amazon Sales Channel available in the US, and it will certainly roll out into the Australian market once Amazon is up and running.
The Shopify-Amazon sales channel lets Shopify merchants automatically sync inventory, create a storefront on Amazon and sell on multiple channels from one admin.
As an Australian retailer, should you sell on Amazon?
Good question, and we have answers. Take a look at this previous post about the pros and cons of selling on Amazon, and what kinds of businesses it works for.
Selling on Amazon means you can get onto the world’s biggest marketplace and show up where your customers are shopping. It vastly widens your audience and fulfiment possibilities.
Selling on Amazon as a small business can also of course be a huge challenge. If you sell products that are pretty similar to others, you might have to start either dropping prices or reshaping how you add value for customers. In a highly-saturated market, innovation is a huge part of staying afloat.
What quite a few businesses aim to do is catch the attention of new customers on Amazon, build brand loyalty, and direct them to make subsequent purchases and referrals from their native site.
If you do decide to sell on Amazon, you’ll have to spend some time thinking about your business strategy going forward. We can help you figure out what to do next -- it’s what we do. Talk to Elkfox about business and marketing strategy in the Era of Amazon.