The Amazon Effect

When Amazon announced in April that they are expanding into the Australian market, businesses small and large alike sat up and listened. There is no doubt that the impact of the retailing heavyweight will be significant – but to what degree? And how can businesses prepare for Amazon’s presence?

What can we expect?

Amazon plans to be fully operational in Australia by 2018, with distribution centres located in each state. In short, Australians can expect faster delivery and cheaper prices – great news for consumers, but with Amazon dominating 43% of online sales in the United States in 2016 and selling over 398 million products, their arrival is shaping up to be a major concern for unprepared Aussie retailers.

One of Amazon’s key offerings, Amazon Prime, provides free and fast delivery for customers who pay an annual membership fee of about $100. Its popularity has soared with over 60 million US households signing up. The retailing giant also has their Amazon Now service, which guarantees delivery within an hour.

In addition to speedy delivery, Amazon’s low pricing is certain to be a huge challenge for local retailers, with industry experts suggesting that they are already conducting price audits and would undercut local retailers by 30 per cent. The battle on price is a strong strategy one for Amazon, with sales for the last quarter up more than 20 per cent to over $US40 billion. Australian retailers clearly have ground to make up, with local retail growth in single-digits for the last decade.

What can Australian businesses do to prepare?

Based on the experience of retailers in the US, where many large retailers have folded or had decreasing sales, Australian businesses can’t afford to be complacent about Amazon’s arrival. Their presence is certain to change the expectations of consumers regarding price and delivery, and it will be businesses that choose to adapt that will survive in the new retail environment.

So, what can local retailers do?

  • Invest in the customer experience – in-store fit-out, staff expertise and advice, and ease of online purchasing.
  • Build great customer relationships – loyalty programs, adding value through content, leveraging email marketing and growing your email database.
  • Find your niche – consider creating your own product line or aligning with a specialty brand. Many niche brands won’t want their products via the Amazon platform and remain independent.
  • Have a local focus – offer local store pick-up or customised products.
  • Don’t compete on delivery – Amazon has the scale and logistics to provide fast delivery which smaller business are unable to match. Instead focus your efforts on marketing and customer service as a differentiator.

The arrival of Amazon will be a game-changer for the Australian retail industry – but there is no reason to be caught off guard. It is likely that Amazon will operate a similar business model in Australia as they have done in other locations, giving local businesses some insight into what to do – or not to do – to minimise the impact of the retail giant’s arrival.

The biggest lesson for retailers – adapt or perish.