Australian business is bracing itself for the imminent arrival of Amazon, the US$150 billion online colossus, writes Beverley Head in this preview of the November Company Director cover story.
It is 20 years since Amazon founder and CEO Jeff Bezos told shareholders the American ecommerce company would play by different retail rules. Amazon’s potential reach extends far beyond retail. Investment bank UBS estimates “the Amazon effect” will intensify competition on prices and potentially strip 0.25 per cent from the Australian consumer price index.
13% see it as an opportunity 52% see it as a threat 25% of these have a plan to compete
The NAB Online Retail Sales Index sized the Australian online retail market at $22.74b in the 12 months to June 2017, with growth from small and medium retailers ahead of that from corporates. Citi Research predicts Amazon could hoover up about $200m worth of that market, with retailers like Myer and Super Retail Group most exposed.
Futurist Steve Sammartino thinks we’ll see prices as low as a third of what Australians currently pay and the only way traditional retailers can respond is by setting up autonomous strategic business units that operate differently. “Companies always try to leverage their existing infrastructure, which is counterproductive.”
The customer path to purchase is now non-linear, so strategies have to change. “A decade ago, the strategy was: do what Amazon does. Now it’s: do what Amazon doesn’t,” says Paul Greenberg MAICD, founder/executive director of “new retail” association Nora. “You need to leverage your physical assets to create a real point of difference to the self-service model. You can’t out-Amazon Amazon.”
Moving to an omnichannel retail strategy can be costly. A study of 20 US listed retail companies by New York restructuring consultant AlixPartners showed that “over the past five years, online penetration had increased from 10.5 to 15.5 per cent, but EBIT margin declined from 10.5 to nine per cent.”
The cost is unavoidable if retailers want to survive. AlixPartners suggests retailers differentiate themselves by prioritising investment in omnichannel innovation and enhancing the instore experience. Cost-cutting is not the way to go. “Relying on markdowns and promotions to drive traffic and sales leads to margin and brand erosion.”
70% of consumers say they're likely to buy from Amazon Online retail penetration rates in Australia are projected to grow by 49% between 2016 and 2021 This is from a base of 7.5% in 2016 to 11.1% in 2021
Amazon will also shift the dial for fulfilment and logistics companies, suppliers, retail landlords and advertisers. Citi Research forecasts that Amazon Prime, the company’s fulfilment arm could be up and running here by mid-2018.
Jonathan Reeve, author of Retail’s Last Mile, says ‘fulfilment by Amazon’ provides the greatest opportunity. “Amazon stores another company’s products in its fulfilment centres and packs and delivers them to its customers. It’s a completely new channel to market, which every brand and retailer should be deciding whether to pursue.”
The first Amazon Marketplace Seller Summit in Australia is scheduled for 13 November in Sydney, in partnership with the Australian Retailers Association and the SME Association of Australia. More than 500 Australian businesses have already registered to sell their products on amazon.com when the marketplace goes live.
Australia Post has just launched Shipster, a membership program offering free shipping on eligible purchases for spends over $25 at participating online stores. For auto, sports and leisure group Super Retail, it’s about strategic preparation for rapid change. “We need capable and empowered teams – and alignment right through the organisation to achieve our objectives,” says chair Dr Sally Pitkin FAICD.
Woolworths’ new WooliesX division offers a Pick Up service whereby customers place their orders online and their purchases are bagged to be collected from 1000 stores nationwide. “Many retailers underestimate the value of their digital channel because the majority of sales occur in a physical store,” says managing director Amanda Bardwell. “It’s important to understand how digital is influencing customers’ shopping behaviour.”
Big retailer Myer grew its online business by 41 per cent last year and substantially increased the range and categories sold online. “We had to be successful online against that new world,” says CEO Richard Umbers GAICD. “We’re seeing our business as truly omnichannel.”
- Algorithms: Amazon will introduce Australia to the “algorithmic economy”. Are you ready? Do you have an algorithmic strategy to price goods and will it respond fast enough to changing market expectations? Who on the board can grapple with this critical challenge?
- Experience: Customers want a great experience online, instore and for returns, service and support. Can you deliver? Do you have an omnichannel strategy? How quickly can you roll it out? Are you going to support mobile and social commerce as well? Do you have access to skills to tackle that?
- Brand: How will your brand handle the rise of ambient technology? If customers speak their order to an in-home device, will they use your brand name or end up with a generic product? Do you have an ambient technology strategy or access to the skills to develop one? Can the team running your SEO and branding programs pivot in time to be ready for this type of technology? Is your advertising agency and marketing department prepared?
- Fulfilment: If Amazon Prime is truly a Trojan horse, how can you respond? If you’re a retailer, can you offer instore pick-ups for online purchases? Could you partner with Amazon so it handles fulfilment? Should you rely on Australia Post and other courier companies?
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