Amazon has landed

December 10, 2017

Will the arrival of US retail giant Amazon undercut or enable local retailers? We look at the hype – and potential harm – as the online department store sets up shop on Australian shores; just in time for Christmas.

Amazon AustraliaAustralian shoppers are expected to buy most of their Christmas gifts online this year.

The days of shoppers spending hours in department stores browsing racks of clothes or shelves full of candles, sneakers or books is being rapidly supplanted by consumers poring over smartphones and laptops, and buying far beyond their local sphere.

Australia Post says shipping for online purchases increased by 15.9 per cent in 2016 and Australian Retailers Association head Russell Zimmerman says shoppers are expected to buy most of their Christmas gifts online this year.

And this seismic shift just got another shake.

Until now, domestic retailers have accounted for 79 per cent of online shopping but this is set to change with the arrival of online behemoth Amazon, which opened its first Australian warehouse in November, after months of speculation.

Inevitable upheaval

Amazon’s Director of Operations for Australia, Robert Bruce, says the company’s 24,000 square metre facility in the outer suburbs of Melbourne “will stock hundreds of thousands of products which will be available for delivery to customers across Australia”.

Over time, he says, Amazon will deliver “thousands of new jobs to Australia and millions of dollars of investment”. The company says it has already signed up more than 500 local businesses to the Amazon platform.  

Author and digital innovation consultant Paul Broadfoot says “Amazon changes the game for consumers significantly”.

“Amazon has been happy to make next to no margin on its retail revenue to date,” Broadfoot says. “That means lower prices for consumers whether they buy them online, in a store or from someone else other than Amazon.”

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Beyond those super-tight margins, Amazon has an arsenal of different services which has resulted in the site attracting more than 43% of all online sales in the United States according to research firm eMarkter.

Amazon has splinter offerings for a host of consumer products:

-Amazon Prime is a $100-a-year subscription service that includes online entertainment streaming and fast shipping from the retail site
-Amazon Fresh is a bricks-and-mortar luxury grocer
-Amazon Go, while still in development, promises a high-tech grab-and-go store with no checkouts
-Amazon Echo is an in-home speaker system that enables customers to call out orders as they go about their day. The retailer says this on in particular is set to revolutionise the way we shop.
-Amazon Web Services dominates Public Cloud services with 47% market share

Level playing field?

Amazon also arguably has another distinct advantage beyond market share and dynamic services – taxation advantages.

“Domestic retailers have a basis to argue that it is not a level playing field when competing with foreign retailers,” says associate professor of taxation law at the University of Sydney, Antony Ting. “While [those retailers] are often fully subject to tax in Australia, foreign multinational enterprises like Amazon can minimise their taxes by shifting profits to a low-tax jurisdiction by, for example, putting intangible assets in that location, and thus justifying booking substantial profits there.”

Retail response

Analysts from broking house Morgan Stanley predict Amazon’s arrival in Australia will take a $12 billion bite out of the local retail sector over the next decade.

“There’s an order in which they are proceeding,” says Alex Pollak, head of Loftus Peak, a global fund manager that focuses on disruptive businesses. “Major retailers are higher up, but they’re definitely coming after the corner shop too.”

To survive in the face of Amazon’s arrival, local businesses will need to consider new ways of doing business, including a greater emphasis on customer experience, such as Myer’s personal shopper service that offers individual, in-store appointments. In some cases, the arrival of Amazon can herald completely new ways to doing business.

“Smaller, niche players with great consumer products also stand to benefit, especially if they currently have a poor online presence,” Broadfoot says.

“[Small businesses] will soon have the opportunity to expand their awareness and exposure by listing with Fulfillment by Amazon, and can even outsource their storage, logistics and customer service to them.”

But it’s not just about growing an online presence. Some are also targeting Amazon’s service offerings. For example, in conjunction with Australia Post, nearly 50 large retailers, including Myer, Harvey Norman, Target, Booktopia and Cotton On have launched Shipster, a subscription service competing directly with Amazon Prime.

In any case, Pollak believes Australia Post will be one of the big winners from Amazon’s arrival. “The worst thing that could happen to Australia Post is that every driver would have to get a bigger truck,” he says.

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