7 Things Australian Retailers Must Know About Amazon’s Impending Arrival

Australia

1. When is Amazon opening in Australia?

Any day now. Amazon’s first fulfillment center in Melbourne officially opened earlier this month. The 24,000 square meter facility is now operational and, although we don’t know exactly when it will start fulfilling orders, it could be a matter of days considering that the Christmas season is just round the corner. November is a key month for online retail with Click Frenzy on the 14th, Black Friday on the 24th and Cyber Monday on the 27th.

2. Are shoppers excited about it?

Customers are getting excited. More choice, convenient delivery services and lower prices are the backbone of what makes Amazon so successful. Back in June, a Finder survey found only 47% of buyers looking forward to Amazon’s arrival. Just a few months later in September this number has increased to almost three-quarters of buyers who are perfectly happy to shop on Amazon according to a Commonwealth Retail Insights survey.

3. How will it affect existing Australian supply chains?

It’s not only brick and mortar shops that will be hurt. For amazon to ship all their products, they need an entire infrastructure of warehouses, trucks and planes. The scale of their operation will put existing supply chain and logistics providers under pressure. The geography of Australia comes with challenges mainly due to the very broad distances and the population’s distribution patterns. Amazon will most likely have to build strong partnerships with local players in the market instead of fully relying on their own distribution network.

4. Are retailers in the region prepared?

It doesn’t seem like the retail industry is getting ready… In fact, almost half of all Australian retailers surveyed in Commonwealth Bank research earlier this year were unfazed about the giant online goods distributor’s arrival down under. Shockingly, back in March almost a third were completely unaware that Amazon is coming to Australia and, of those who did know, only 14% had a business plan in place to be able to compete with Amazon.

In a Marketo study, over 50% of senior decision-makers think that more than 50% of the nation’s CEOs believe the global giant’s Australian touchdown will affect their businesses – with 13% believing they will lose out on sales. Surprisingly, far fewer businesses are getting ready to compete with Amazon. Just over 20% of businesses have vowed to up their game in order to go toe-to-toe with the US retailer — saying they are going to prepare to “better engage with customers like Amazon does”.

5. How aggressive will Amazon’s prices be?

According to a Reuters news report, the chairman of the Australian Competition and Consumer Commission, Rod Sims, told Fairfax Media that Amazon was legally allowed to set its prices low enough to beat out competitors without running afoul of any competition laws. As a result of Amazon’s ability to drive prices down, existing retailers will have to work harder to remain competitive, not only through tighter margins but also by matching Amazon’s level of customer service all the way to the last mile delivery. Australian businesses will feel the pressure to optimize their supply chain and in particular their delivery logistics – where Amazon doesn’t mind making a loss on the cost of delivery in order to build customer loyalty.

6. What impact has it had on the market already?

As reported by Forbes, Amazon’s plans have sent shivers through Australia’s marketplace. From their peak share prices last year, major retailers Myer, Harvey Norman and JB Hi-Fi are down 47%, 25% and 22%, respectively. The major shopping center landlords, Scentre Group and Vicinity Centres, are down 24% and 25%. While of course it wouldn’t be right to attribute all these market fluctuations to Amazon, it does reflect the fear that the e-commerce giant will change consumer behavior and re-shape the local retail landscape.

7. How fast is Amazon expected to grow in Australia?

According to a USB report, Amazon is likely to capture 2% of retail sales within five years of entering Australia. However, broker Macquarie expects Amazon to generate $11.3 billion in online sales by 2025, or 25% of all online sales in Australia. Besides taking business from department stores, home-appliance, sporting-goods and clothing retailers Amazon could also induce more Australians to shop online. Their thinner margins will inevitably force retailers to invest much more on their digital presence and delivery logistics infrastructure.

“If you fail to plan, you are planning to fail.” – Benjamin Franklin

When a force like Amazon’s enters a new market it causes a shift on the entire landscape. To a bigger or lesser extent, most retailers will be affected. But besides losing sales, what Amazon will bring is a new standard of service which will soon become the standard. That’s why it’s imperative that existing retailers review their entire supply chain, modernize their delivery logistics capabilities, and leverage technology and innovation in order to match or exceed Amazon’s standards.

It’s crunch time for Australia’s retail industry.

Raanan Cohen

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