Will Amazon’s arrival in Australia drive innovation and improvement?
We all know that Amazon is coming to Australia, and reactions like ‘wreak havoc’ and ‘decimation’ are commonplace.
Even without the details and exact timing of Amazon’s entry to Australia, there are a few things we can be reasonably sure about:
- Online retailing is still relatively small in Australia, at around 7% of the total retail market. The suggestion that Amazon will open its own distribution centre in Australia may increase access to a greater range of products (who hasn’t had the dreaded ‘does not ship to Australia’ message?), but ABS data shows there is little growth in online retailing. Amazon will have some impact, but it is unlikely to create a stampede to online shopping.
- Amazon’s biggest impact may be on consumer perceptions. Amazon puts a huge amount of information in the customer’s hands including pricing, product range and independent recommendations, which gives them tremendous bargaining power. Price matching is already a common retail practice, but consumers will increasingly see the ability to get the best price as a given, along with access to greater selection and objective information about products. These dynamics are likely to push revenue down and costs up, even if sales aren’t lost to Amazon.
The Amazon distribution warehouse in Madrid. Picture: Alvaro Ibanez/Flickr
How should Australian retailers respond?
Australian retailers may want to think about their ability to reduce Amazon’s advantages while extending their own. There are some areas where Amazon has advantages that are difficult to reduce because they are built into a completely different business model. For example, the timing in Amazon’s cash flow model where they only pay for the product after it is bought by a customer has been estimated as worth billions of dollars a year.
Nevertheless, there does seem to be a couple, of opportunities to close and widen the gap.