22 August 2018
Amazon in Australia: What’s Next for Retail and eCommerce?
Amazon, even when silent, can be omnipresent.
The eCommerce giant made headlines last year when it opened its first Australian warehouse in December, located in Dandenong, Victoria.
Brick-and-mortar stores in particular braced for impact, expecting an aftershock from the initial quake.
The news of Amazon’s arrival in Australia has had more effect on the stock market than local sales. The threat of the giant’s growth in the future pressuring stock prices rather than anything tangible. But this alone is creating a volatile retail environment.
Take JB HI-Fi as an example. The successful local Australian electronics retailer earlier this year reported its half yearly results: growing profits but a drop in profit margins and poor sales over in neighbouring New Zealand meant the company’s stock dropped 7.5% in the first three hours of trading when the figures broke back in February 2018.
Impact of Amazon on Australian Retail and eCommerce
It wouldn’t be unfair or incorrect to say that the ‘Amazon Effect’ never really came – but retailers are still feeling a little spooked.
Amazon has undoubtedly been slow cracking into the Australian market. The Guardian called it ‘underwhelming’.
Indeed, all has been relatively quiet since the opening of the Dandenong warehouses. But savvy retailers will have their ears to ground… wisely and slow, they stumble that run fast.
Especially since the recent news that Amazon just opened a Sydney warehouse that’s the size of six football fields. The warehouse is said to play a critical part in rolling out fast delivery options for Australian consumers.
The Amazon Effect in Australia
Amazon are known for their disruption of the online and physical marketplace. The major manifestation of the Amazon Effect is the ongoing consumer shift toward shopping online. They’ve reshaped the way retailers and eCommerce companies do business and the brand has become almost entrenched - and omnipresent - in our lives.
Consumers are pushing this increase in popularity, ever keen to find new ways of reducing their instore time and requirements.
Last year, Amazon's full-year revenue came in at USD $177.9bn, a rise of 31%, while profit hit $3bn, against $2.4bn in 2016. A percentage of this success is owed to Prime, Amazon’s fast delivery service that also gives members access to exclusive TV shows and extra benefits.
But we’ll come on to that.
What to expect from the Amazon Global Store
Australians have been free to buy goods from the United States via amazon.com for many years. However, since 1 July 2018 Amazon have put a stop to it.
Now, local consumers will only be able to buy goods from Amazon’s Australian website as the giant will no longer ship from its international websites to Australian addresses. All visitors to the US site will be redirected when you get to the checkout – if the product exists in Australia.
Currently, Amazon in Australia offer a completely different range of goods and they’ve not yet disclosed which products will be available and unavailable.
Sounds a bit frustrating, but they’ve cottoned on that many consumers won’t be used to being told no when trying to buy online. To counteract this shipping issue – or ‘global ban’ for glass half empty types - Amazon founded their Global Store.
How does the Amazon Global Store work?
The point of the Global Store is to offer customers who aren’t in the US an additional 4 million items that were exclusive to the US market.
It’s currently unclear however how Australian prices will compare with its stores in other countries.
At the moment, the general consensus from Australian shoppers is that Australians already pay more for the same goods online. For some, the feeling is that Amazon’s shipping ban means they’re being forced to shop elsewhere but conversely others believe the change may help level the retail playing field for local businesses.
But third-party sellers are significantly more expensive on Amazon’s Australian site than the US site.
As well as this, many consumers believe the current Australian site doesn’t compare to the US or UK site, which offers a much larger range of products.
Associate Professor Gary Mortimer from Queensland University of Technology Business School comments, “if shoppers are unable to get products through Amazon internationally, they will probably move to other players like eBay or Alibaba.”
Ultimately, the success of Amazon Global Store will come down to cost of product and cost of shipping which is yet unknown.
For local retailers, the race might be on to offer consumers not necessarily the same products as Amazon but a better shopping experience.
The Amazon Prime Effect
Professor Mortimer points out that while change is afoot, Amazon Global isn’t likely to have a significant impact on Amazon’s customer base in Australia. At least not yet.
"I think ultimately this is really Amazon just making a protest vote against the Federal Government's decision to implement GST on purchases under $1,000," he said.
The Professor is referring to the Malcolm Turnbull government’s new online GST laws, which require overseas businesses to collect the tax on products under $1,000.
The launch of Amazon Prime in Australia
However, Amazon are making more of a silent splash than big waves. Last June, they launched their Prime service in Australia at $59 a year. This is much cheaper than most comparable companies and generally caught analysts by surprise as it was a lot more aggressive than anyone expected:
- Amazon are promising Australian consumers two-day delivery
- Morgan Stanley analysts comment that the low price “shows Amazon’s high long-term aspirations for Australia”
- Prime is tipped as Amazon’s secret weapon
Is Prime much cheaper in Australia than other countries? Definitely - let's look at the annual costs:
- $US119 in the US, or $161;
- £79 in Britain, or $141;
- €49 in Germany, or $77, and
- $C79 in Canada, or $80
A more affordable price opens Prime up for mass adoption, making it a highly competitive channel.
The question remains for many brands whether they’d sell products on the Amazon platform in Australia. Amazon are certainly tackling the Australian market a little differently and for some brands, if Amazon can successfully build a decent subscriber base, it might prove beneficial.
A Slow Start is Gaining Speed
The Australian retail sector hasn’t witnessed the expected destruction Amazon was supposed to cause. The slow start was no doubt purposeful and now Amazon are quietly starting to ramp things up. And Prime signifies an aggressive future.
Delivery with Prime is free. This automatically blows many retailers out of the ballpark and shows how seriously they take this market.
Tom Kierath from Morgan Stanley comments: “Australian retailers tend to charge between A$5 and A$10 for delivery, so a number of purchases are required to ‘payback’ - the A$59 Prime is low at $6-12 annually.”
For consumers, Prime membership will be a great consideration. And with subscription payments, comes loyalty.
While Amazon.com.au may offer a much smaller product range, the company, lead by Jeff Bezos, is obviously willing to wait in the wings, find the sweet spots, and then launch a full product suite.
Jeff Bezos once said, “we’re not competitor obsessed, we’re customer obsessed. We start with the customer and we work backwards...We’ve had three big ideas at Amazon that we’ve stuck with for 18 years, and they’re the reason we’re successful: Put the customer first. Invent. And be patient.”
But for Australian businesses, patience sounds like an impossible task.
About the author
Victoria Galloway is Bambora APAC's Technical Copywriter, and has been writing and producing in the payments and eCommerce space for a number of years in the UK and Australia.