After a sleepy six months operating down under, Amazon woke the Australian media machine last week by announcing that Aussies would soon no longer be able to shop from its international sites.
The Seattle giant pinned the blame on the Australian government’s decision to force online retailers to capture a ten per cent tax on all goods bought overseas (previously GST had not applied for purchases under $1000).
Amazon’s GST announcement — which came almost six months after the company launched its retail offering in Australia — shows it’s still finding its way and is yet to have a made a significant mark on Australian retail.
But the sound and fury which ensued brought to mind a common refrain used by Amazon execs: “We’re willing to be misunderstood for long periods of time.”
The true test of Amazon’s might in Australia, according to retail experts, will be the uptake of Prime when it launches later this year.
Amazon’s early moves in Australia also highlight the distinction between how outsiders see Amazon and the way it sees itself. Take Amazon’s launch in early December 2017, for example. What was the most successful international launch in its history was judged a disappointment by consumers and media who had been anticipating more choice, sold cheaper and delivered faster than any other Australian retailer.
That expectation was unrealistic, argues Deloitte’s head of retail, David White.
“People were looking at a very mature business in the UK or the US and thought they could pick it up and move it to Australia, which was never going to be the case,” White told Which-50.
“If you ask people from Amazon they will say it’s actually the most successful launch they’ve ever had internationally in terms of number of SKUs and how quickly they got it up and running.”
Juozas Kaziukėnas, founder of Marketplace Pulse, which tracks the performance of eCommerce marketplaces, said Amazon launched in Australia with an MVP (Minimum Viable Product).
“Everyone looked like they were expecting Amazon to have Prime on day one, best prices on day one, and full catalogue on day one. That is impossible. Instead, Amazon launched a minimum viable marketplace web site and are slowing building the assortment and pricing. Marketplaces take time to build organically,” Kaziukėnas said.
Right now Amazon is focused on building out SKUs, getting the pricing and delivery right.
Phil Leahy, veteran marketplace seller and CEO of Retail Global, said once “the bugs are ironed out” they’ll be in a position to launch Prime.
“I can’t see them putting their foot down until Prime launches,” Leahy said.
Leahy is bullish on Amazon’s potential to disrupt Australian retailers, but noted it’s still early days and sales through the platform will take time to grow.
Kaziukėnas also emphasised Amazon’s long-term vision.
“If retailers today are looking at Amazon and thinking ‘huh, this is not impressive at all’ they will be greatly disappointed a year or two from now when the Amazon flywheel starts to spin,” Kaziukėnas said.
“Amazon is playing a long-term game here, what Amazon.com.au is today is not what it will be in a year from now, and thus its impact will start to accelerate once key services like Prime launch,” Kaziukėnas said.
A Slow Burn
And that’s exactly what makes life difficult for Australian retailers. (Well that, and Amazon’s willingness to reinvest 100 per cent of every dollar it makes until it gets its proposition right).
“The challenge that businesses have is that Amazon is on a slow build. And Amazon is willing to take their time to get it right,” Gartner analyst Thomas O’Connor told Which-50.
O’Connor says the pieces of Prime are coming into place via competitive prices (particularly on leading or top selling products), a wider assortment (there are now 16,000 sellers on Amazon.com.au and 60 million products), and delivery infrastructure, underscored by the launch of Fulfilment by Amazon and the announcement of a second Australian fulfilment centre.
“With those three pieces around price, assortment and delivery starting to come into line, as consumers test the water with Amazon they will increasingly be positively surprised by Amazon’s services and see Amazon definitely worth a future look,” O’Connor said.
The other point that O’Connor believes is an important driver for Amazon’s growth in Australia is the aggressive push of its Alexa devices, including TV advertising campaigns serving to “drum up further engagement with their ecosystem.”
“As consumers get comfortable using these devices it ties them to the Amazon ecosystem and allows them to increase their interactions, and the more consumers are interacting with Amazon, the more they are likely to buy over the longer term. So I think that’s another critical piece,” O’Connor said.
Google is currently leading the smart home speaker market, according to data from Telsyte, but Amazon and Apple are expected to close the gap as their products become more widely available.
Foad Fadaghi, Telsyte Managing Director, argues Amazon has had a limited impact on Australian retail since launch, but will substantially improve when it is able to replicate its north American capabilities in Australia.
“Amazon’s key selling point in the USA is its fulfillment and ranging, but to date, both have been limited in Australia,” Fadaghi told Which-50. “The company’s Australian announcements have had more of an impact on local retailer share prices than on ecommerce volumes as far as our measures show.”
“This, in turn, has spurred on the digital transformation strategies of a number of retailers, and caused many to batten down the hatches before the expected Amazon storm.”
The Money Men
Prior to Amazon’s launch in Australia, bricks and mortar retailers’ shares took a hit. Between April and June 2017, more than $3 billion, or over four per cent, was wiped off the collective market value of Wesfarmers, Woolies, Myer, Harvey Norman, JB Hi-Fi and Super Retail Group according to a Reuters report.
Kevin Hua, co-founder of Atlas Trend, says Amazon is launching in stages, which means it’s too early to assess Amazon’s impact on Australian retailers.
An analysis by Atlas Trend of Australian retailers’ share prices over the last six months shows share performances have varied widely. Kogan, for instance, is enjoying “a rising tide [that] lifts all boats” as the company founder Ruslan Kogan stated.
“Whilst there are company-specific reasons for the varied performances, it does appear Amazon’s presence has made Australians more aware of the choice and potential pricing advantages available online,” says Hua.
In contrast, the legacy retailers with large store networks like JB Hi-Fi, Myer, Harvey Norman and Super Retail Group “have seen their share prices track sideways with continued concerns over Amazon’s presence.”
“Certainly, there are some company specific reasons for their share price performances, but it has as much to do with the fact that currently only about ten per cent of retail sales in Australia are conducted online and as that rate grows, it will cannibalise traditional retailers who fail to adequately adapt,” Hua said.
“We do not think this signals the end of traditional retailing in Australia, but the industry must become more creative and adaptable. Those who do, increase their chances of long-term success and those who do not are likely to be forgotten.”
Impact on Australian Retailers
According to Deloitte’s David White, Amazon’s announcement that it would finally enter the Australian marketplace had a positive impact on local retailers.
“Eighteen months ago we saw a flurry of panic amongst a lot of retailers and a lot of boards about what the impact would be, what their strategy was and what do they need to do. It really kick-started — in a positive way — people thinking around their business model, their brand, what they had to offer the consumer, what relationship they had.”
Brands that aren’t strong enough to compete against Amazon will likely be sold or folded into a parent company.
“Brand consolidation is going to be a player for the next 12 months,” White said.
“We expect to see some more consolidation of brands which we don’t think are Amazon-proof because they don’t offer anything unique and they won’t be the cheapest on price.”
Another strategic area for retailers is supply chain. On this front, White says, “there has been a mind shift in the market but it’s still fully to translate into that high level investment.”
Gartner’s Thomas O’Connor said Australian retailers aren’t pushing their delivery options but expects they will start promoting these after the launch of Prime — depending on what Amazon is able to offer consumers.
“The competitiveness in terms of speed of delivery isn’t being emphasised quite as strongly by retailers now,”
“As Amazon Prime does come to market, that will likely drive another wave of discontent, concern and worry within the retail world. That’s definitely coming, it’s just a question of what Amazon is able to launch with.”
One exception is eBay, which last week announced eBay Plus — a service that will give shoppers unlimited deliveries and returns from thousands of Australian retailers for an annual $49 fee.
What Amazon does between now and Christmas is expected to have a substantial impact on retailers’ strategies. But Deloitte has held off from making any specific predictions on the next six months.
David White explains, “I don’t think there is a precedent. Any forecast we believe would be pretty inaccurate, depending on what category they go to, but also how quickly the take-up is from Amazon Prime and what the Australian appetite is.”
“The impact will take longer than many people thought. Even for this Christmas coming I think they will have an impact but it will be nowhere near as much as some people think.”