Australian retailers gearing up to face off with Amazon
Online retail giant Amazon is coming to Australian shores and local businesses can already feel the pre-emptive thud of its footsteps reverberating through the retail landscape. But is its arrival really as scary as the media is making it out to be?
Competition doesn’t always mean the end of the little guy. In fact, competition often breeds growth. One of our longstanding clients, Dean Rushton of Cycology, which operates in the UK, US and European markets, reported that their experience with Amazon’s expansion has been that it has drawn more consumers into the online shopping environment. They are confident it will encourage more business transactions overall, to the benefit of the whole retail industry.
Our local Australian retailers have a clear advantage already; they know their customers quite intimately, they know their product preferences, their shoe size, and they provide really personalised consumer experiences, both online and in-store. It’s these personalised experiences that people are really loyal to.
No matter how cheap or how fast your product or service might be, if you aren’t providing an enjoyable consumer experience then you aren’t going to get repeat business—as evidenced by one recent Australian study, where only 17% of consumers who experienced an unsatisfactory digital experience would shop with the brand again. On the flipside, 73% of consumers who reported a strong digital experience would be a repeat visitor
The value of the personal touch was highlighted recently by the public response to the launch of Bodega—a Silicon Valley start-up that aims to situate its high-tech vending machines on every street corner. The fledgling business faced huge backlash on social media, where critics worried that its goal was to replace the traditional ‘mom-and-pop’ corner stores. This example shows us that, despite a push for convenience, consumers the world over still place real value on a personalised retail experience—whether it be online or in-store.
Impact for businesses
All that being said, there will undoubtedly be a material impact on many retail businesses with the entry of the ecommerce disruptor. Overall, Amazon is predicted to steal 2 per cent of market share (equivalent to $12 billion) within its first five years in the Australian market.
Electrical goods, apparel and toys will be the biggest market segments to be impacted—think companies like JB Hifi, Myer and Harvey Norman. In fact, UBS released a landmark report that estimated margins for major listed retailers will fall by between 100 and 200 basis points by 2023, dragging down earnings by as much as 20 per cent, with Super Retail Group, Myer and JB Hi-Fi the most exposed.
Categories such as dry goods, fresh food, and auto parts are predicted to take longer to establish on Amazon, given the challenged economics of operating the delivery model and higher initial expenditure required to undertake distribution.
Initially, we think the biggest portion of business will be taken from eBay’s Australian operation, which will lessen the impact for most retailers in the early years. That doesn’t mean smaller local retailers can ignore Amazon looming on the horizon—as with any major changes to your market, if you don’t innovate and respond strategically to changes there could be very real impact on profit margins.
Impact for consumers
Ultimately, the addition of the retail giant to the Australian marketplace means good things for consumers. More choice equals more competition, which puts pressure on businesses to up their ecommerce game and deliver better digital experiences. It also drives prices down, particularly with Amazon’s aggressive pricing behaviour—globally, Amazon changes their prices tens of millions times a day. If there are deep discounts and a lot of high/low pricing, Amazon will match the lowest price every week.
We always fear the unknown (hands up who remembers Y2K?) but with change comes opportunity. While Amazon will certainly have a huge impact on the retail landscape and the Australian economy overall, it’s not all negative. The retail giant will bring increased customers to the online retail space, and it’s up to local businesses to capitalise on this by responding with agility and remembering their points of difference by offering a personalised, positive customer experience.
Laura Qureshi and Martin Cox, Directors and Founders of DO Commerce, a full service digital agency specialising in end-to-end digital and ecommerce projects.