When I first moved to London I was stunned by how pervasive amazon was. It’s everywhere. They have staggeringly large warehouses, immense product lines and very very low prices. Most of the people I know had prime membership, giving them free same day delivery and access to some decent video content (similar to Netflix). Amazon is a sticky platform, most people I know shop on it weekly. With the exception of clothes, alcohol and food, it would be my first port of call when shopping. The UX is extremely intuitive and offers single click purchasing, making it so easy to buy a book or reorder some batteries. Given the speed of delivery and the range of goods it changed the way I bought things, digital became my go to channel.
Moving back to Sydney four years later, and being amazon-less is probably my biggest gripe with Australia (maybe followed by the draconian licensing laws). Life is just not as easy. EBay and gumtree don’t really cut it. They have neither the depth of products, the great prices or the rapid delivery.
The Australian Financial Review and the Sydney Morning Herald have both reported that Amazon is looking to enter Australia sometime in 2017. This is great news for consumers. But how will it affect businesses in Australia.
When Amazon does enter, what will this mean for the big players?
Amazon has not made a meaningful profit in 20 years, they are happy to operate on the slimmest of margins (often sub 15%) to drive volume and crush domestic operators. They reinvest their profits into development of their platform and their supply chain.
Initially, they will probably focus on selling product across key categories, these will most likely be books / e-books, toys and consumer tech. They will drop prices dramatically and offer a broader range of products within these categories, than the incumbents can given their vast supply chain and supplier network. This will create tension with the incumbents; such as Harvey Norman, Kogan and JB Hi Fi and in the book market with Dymocks and Booktopia. The consumer should benefit from lower prices and a wider range of products, particularly when it comes to electronics.
Businesses with a high sales mix in retail will be hardest hit given their slim contribution margins driven by their expensive retail footprint. Most of the big retailers are now omni channel and have decent websites, giving them some insulation due to the lower fixed costs vs traditional bricks and mortar retailers.
What does it mean for the smaller guys?
A new sales channel?
This is a big opportunity for smaller businesses with niche or differentiated product offerings to tap into a marketplace which will be ubiquitous in Australia within a few years. Currently many small businesses who sell products can’t afford to have strong digital coverage across paid social, organic, and paid search, which impacts their ability to grab market share, especially if their product category is very competitive. Amazon will level the playing field here. If your product is the best (based on reviews and sales volume) you will rank higher and probably sell more. This contrasts with googles model where businesses buy eye balls with paid search and fancy SEO agencies who employ complex strategies to improve organic ranking.
Getting real estate on google can be gamed or bought, Amazon is a purer marketplace, generally the best value or best quality product is ranked higher driving more traffic and sales to the vendor.
Amazon as a competitor
Amazon sells some items itself, but most of the products sold are through resellers which it “clips the ticket” on. If you fall into a non-amazon category, Amazon.com.au could become a significant sales channel.
Businesses who operate in the categories where Amazon sells directly such as consumer electronics and books are at risk of becoming uncompetitive on price. Amazons scale means they buy in bulk combining this with the low margins they operate on, means very low pricing. You may need to reassess your business model as they are notoriously aggressive in new markets.
Lastly, amazon is global which means offshore businesses can now access the Australian market through their platform. This will likely mean more competition for niche products. However, the silver lining is the opportunity to expand sales into Europe, the US and other parts of the world. If you have a high-quality product that is Australian made, you could generate demand globally.
Those with the best product, measured through reviews and price, will win. Those with substandard product will struggle. Amazon is both an opportunity and a threat, in some ways it’s a survival of the fittest scenario.
What can you do now?
Amazon.com.au is about 6-12 months away from launching, there are some things you can start doing now to gear up for when they do.
For those who sell physical products analyse whether any of your range would be suitable to sell on the platform. High end clothes for instance might not be, but vitamins may be. Do some comparisons with amazon.co.uk or amazon.com to see who is selling similar things to you in the UK or US. Look at the pricing, compare this to other retailers in those countries and you should get a feel for the discounts being offered and potentially the new competition you may have.
If you’re not price competitive you may want to renegotiate with your suppliers or think of expanding your range to have a lower cost variant.
How quickly do you get goods out to your customers? The iconic offers same day delivery and quick processing of returns, this has been a major driver of their growth. Amazon will offer the same speed for the majority of products. Getting you supply chain in order, ensuring you have nimble processes, to cut down the time from order to delivery is important. You may need to get a new delivery business or invest in a better inventory system.
For B2C e-commerce businesses in Australia, Amazons entry changes everything. How will it impact your business?
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