You are here
Amazon is coming: how will it impact the Australian retail market?
With Amazon set to have its flagship Australian website up and running by 2018, there are big changes afoot for the Australian retail market, for both businesses and retail professionals.
Let’s take a look at some of the fundamental industry shifts we can expect to see, and how Australian retail businesses and professionals will need to adapt to stay relevant in a rapidly changing market.
Amazon’s impact in the US
Since Amazon’s beginnings selling books online 22 years ago, the company has grown to be the second largest retailer of consumer electronics in the US (behind US retailer Best Buy), and is predicted to soon become the largest clothing retailer.
The e-commerce giant currently accounts for about 34% of U.S. online sales, and it’s predicated that market share will grow to about 50% by 2021.
With such an enormous footprint, Amazon has proved to be a very real threat to US retailers. Earlier this year, America's biggest department store, Macy's, announced it would cut 10,000 jobs and close 100 stores, resulting in a share price drop of 10%. Similarly, department store Kohl’s shares dropped approximately 20% due to ailing holiday sales, its biggest decline in 14 years.
As yet, many of the major retailers in the US have been unable to keep up with Amazon’s savvy and technologically advanced business model, which provides an incredibly convenient shopping experience with fast delivery times, low prices and an extensive product range.
What will Amazon look like in Australia?
The Amazon website in Australia is currently simply an online marketplace based in the US, where certain sellers offer international shipping. However, with plans to establish huge warehouses on our shores, Australians will be able to benefit from local stock inventory, lower product and shipping prices, and much faster delivery times.
In addition to Amazon Marketplace, the company’s main e-commerce platform, there are plans to roll out its Amazon Prime Now app, which offers delivery on items in as little as one hour. This will be followed by AmazonFresh, a grocery delivery service based on partnerships with local suppliers and Amazon’s own warehouses.
It’s clear that Amazon has serious ambitions for the Australian retail sector, having already established 250 trademarks ahead of the upcoming launch. And with the company planning to roll out its full suite of products, there’s no doubt that it will transform the retail market and the way consumers shop in Australia.
Amazon’s predicted impact on Australian retailers
According to a recent Nielsen survey, Amazon's US site already converts almost one in two Australian shoppers (49%) into sales – the fourth highest behind eBay (78%), Amazon's The Book Depository (74%) and online fashion retailer The Iconic (53%). Evidently, even with more expensive shipping and longer delivery times from its overseas website, consumers value Amazon’s product range, personalised customer experience and easy-to-use website.
The numbers show that consumers are excited about the prospect of the Amazon launch in Australia, too. In the same survey, 75% of Australians over the age of 18 said they are interested in Amazon Australia and 56% said they are likely to purchase products from its Australian site. About 45% of respondents also said they would subscribe to Amazon Prime to benefit from special deals, discounts, and faster delivery.
With an already established consumer base in Australia and a far more sophisticated and convenient shopping experience arriving imminently, Amazon’s impact on Australian retailers is predicted to be significant.
Citigroup estimates that profit for big retailers such as JB Hi-Fi, Harvey Norman, Myer, and Super Retail Group could drop as much as 20% due to Amazon’s dominance in the market, with the greatest impact to be felt by electronics retailers. "We estimate 44 per cent of its product sales would be electronics [and] the next largest category is likely to be physical and electronic media including books", said Citigroup’s head of research, Craig Woolford.
How retailers will need to adapt to Amazon in Australia
With Amazon reportedly planning to undercut local prices by as much as 30%, Australian businesses will need to look at how they can turn a profit even with drastic price reductions. This will likely involve looking at new means of production and suppliers, and even partnering with other companies who can offer complementary products and services to provide customers with package deals.
Businesses will also need to consider putting in place faster delivery systems to meet increased customer expectations. Amazon uses a sophisticated logistics framework that actually predicts when consumers will need certain items and has those items waiting a local warehouse for delivery. Australian retailers will need to understand their most popular sales locations and their customers’ buying habits ahead of time to make products available as quickly as possible.
Similarly, retailers will need to turn to more sophisticated data and analytics to better understand their customers’ shopping habits and preferences. Online and offline data will need to be married so that the end-to-end customer experience is fully understood and made as seamless as possible. This data should be the source of wisdom used by all business teams, from logistics to marketing, to inform decisions about product purchasing, promotional efforts and overall strategic business decisions.
Factors like page load speed and mobile usability can have a significant impact on a retail company’s ROI. In fact, it’s been shown that just one extra second of page load time reduces per-user revenue 1.8%, and two seconds reduces it by 4.3%. With the introduction of Amazon Australia and its sophisticated tech, retailers will need to ensure their websites, apps and other online platforms are on par with new technological benchmarks.
User experience across all channels will also need to be a major focus for Australian businesses, with an emphasis on creating customer-first environments online and offline, where each consumer’s individual preferences are specifically catered to. In order to boost customer engagement and loyalty, retailers will need to identify ways to form emotional connections with their customers and make their lives easier.
Finally, some retailers will be likely to adopt the “if you can’t beat them, join them” approach, using the Amazon platform directly to advertise their products, leveraging its technological capabilities and customer reach. For businesses with the ability to source products globally at competitive prices, it will make sense to use Amazon’s distribution capability to their advantage.
How retail professionals can benefit from Amazon’s arrival in Australia
Amazon’s launch in Australia will herald an inevitable shift in the market, and it will be a prime opportunity for retail professionals to expand their skillset. Seamless end-to-end customer experience will be more important than ever in the retail sphere, and there will be an increased demand for retail professionals with the ability to analyse consumer habits and connect with customers on multiple channels.
Upskilling in digital marketing, analytics, and customer insights will bolster an employee’s value to any retail business aiming to compete in a rapidly changing environment.
What’s next for Amazon and online shopping?
The world of e-commerce and online shopping is moving at an unprecedented rate, with new technologies already on the horizon. Amazon Go, which is described by Amazon as “the world’s most advanced shopping technology”, is currently in beta testing by Amazon employees and will eventually be rolled out to American consumers.
The app is designed to be used inside a dedicated store selling food made by on-site chefs, local kitchens and bakeries. The Just Walk Out technology uses computer vision, sensor fusion and deep learning to detect when a customer takes products from a shelf or puts them back, keeping track of everything held in the customer’s shopping trolley. When the customer is finished shopping, their Amazon account is charged automatically and they can simply walk out of the store.
PwC recently designed a similar conceptual service, Kart, which could theoretically remember where a customer shops, what products they like or frequently purchase, share the best deals based on location, and even help customers shop more efficiently by helping them find parking and telling them where products are kept in the aisles.
While services like these may seem far-fetched for the average consumer, machine learning and detailed data on customers’ habits will eventuate in a shopping experience that is completely tailored to the individual. Retail businesses will need to focus on creating a highly personalised, convenient and seamless end-to-end customer experience in order to compete with retail giants like Amazon.
Given the right planning and investment, these advancements in online shopping should be an exciting and transformative time for retail businesses and professionals alike.
For more insights and trends affecting Australian industries, check out our blog
Amazon’s impending arrival in Australia heralds a number of changes in the Australian retail market:
- Customers will expect lower prices, faster delivery, and seamless end-to-end experience
- Retail businesses will need to leverage sophisticated customer data and technologies in order to stay competitive
- Retail professionals should consider upskilling in digital marketing, analytics and customer insights to be valued in the industry