Amazon – Warning Aussie Stores will Struggle to Compete

A top US retail analyst says that when Amazon comes to Australia, we can expect some second tier shopping centres to become “white elephants,” as commercial property falls, according to The Financial Review.

In addition to this, a recent Citi report says the likely arrival of Amazon in Australia could see the earning potential of some of our top traders, including Myer and JB Hi-Fi, drop by 23 percent.

A good reason for this major disruption is that Australia has huge profit margins. Amazon plans to come in and take advantage of that. And if retailers are planning to compete on price alone, it’s unlikely they will survive. They need to think along the lines of offering consumers more than “just cheap.”

So, what can companies do now to prepare for Amazon’s arrival later? 

Myer has already begun reacting by offering its consumers a more personalised shopping experience. Retailers need to offer its consumers more than just price slashing. They need to compete online and give consumers more, because let’s face it, Australians do shop a lot.

Gerry Harvey of Harvey Norman recently came out saying that furniture retail won’t be affected too much if Amazon comes to Australia, because people don’t shop for furniture that much online, but rather it’s the electrical goods that are really going to take a thrashing. However, I beg to differ. More than half of my peers shop for furniture online. I moved house 12 months ago and 80 percent of all my furniture was purchased online.

The good news of the possible arrival of Amazon in Australia is pricing, well for the consumer anyhow, and in the short term. The bad news is, if the commercial property marketing is falling, then it’s going to spread across other sectors, including investments and super funds that invest in these areas, so there will be a ripple effect and huge ramifications along the line.

With overseas online retailers now having to implement the GST for purchases under $1,000, consumers will now find that cross-border online shopping may not be as cheap as they thought.

However, getting back to our huge profit margins in Australia, this is what Amazon looks to take advantage of if they come here. Our retail market is estimated to be worth $221 billion. Even if Amazon takes a third of this, that’s going to have a huge impact.

So the bottom line: retailers are going to have to adapt to survive the Amazon disruption if they come to our shores in September, step up their game in online retail, pricing, and offer consumers more than “just cheap”.

 

7 thoughts on “Amazon – Warning Aussie Stores will Struggle to Compete

    • REX
    • 9th January

    More jobs will go thanks to online. if you ever have kids Prinitha, wont be any jobs at Amazon, they probably have a work force of about 20. Harvey has that many in a small country town.

    Reply
    • Tony
    • 10th January

    You reckon Rex? I know that we are comparing chalk and cheese, but I think that in the US, Amazon employs almost 250,000 staff.
    In AU, Harvey Norman employs just over 5,000 across all stores, distribution centres and head office combined.

    I’m not trying to defend one over another but on a per capita basis, Amazon employs a higher percentage of the respective US population than HN does here, so not the best example mate!

    I have children at an age where they need to begin thinking about careers and they are certainly not concerned about future job prospects

    Reply
  1. How much of Amazons product range will be coming from overseas? this means local business wont be able to compete on price as we do not get the volume discounts the US companies get. People go to Amazon for Price and Speed of delivery, how do we compete with this when they do it better then anyone else in the world. Dark times ahead for retailers.

    Reply
    • Bigdreamsaremadeofcheese
    • 11th January

    Harvey Norman Holdings Ltd
    Total income during 2013-14: $1.18 billion
    Taxable income during 2013-14: $232 million
    Tax paid: $64.49 million

    Amazon
    £5.3bn sales from British internet shoppers,
    Tax paid: £11.9m

    Reply
    • JP Hop
    • 11th January

    I love these stories about how overseas brands are going to come in and wipe out local retailers. They see high prices and assume low competition and an easy mark. Fundamental economics states that there is already competition in Australia and the margins are what they are due to being necessary for corporations to survive in the long term. Unless Amazon is coming to town and running at below cost with prices getting offset by overseas profit, the government would take interest in that sort of behaviour. The whole Amazon is coming story reminds me of the Aldi is coming = Coles and Woolworths will not survive. How did that work out?
    Amazon are coming to Australia – awesome, they can play by Australian rules…start paying GST, set minimum wages, compulsory superannuation, limited commercial buildings: higher rent, high transport costs. The one thing every overseas brands forgets is distance. They think there is high margins because they basing pricing off their USA cost, not the imported cost. Prices are high here because the product has already been imported. Ask any online shopper buying in the US. I bought my book for $US4.99, it is $20 in an aussie bookshop. Yeah well, you spend between $5 and $10 shipping it here, convert the currency and it is not much cheaper than removing the GST.

    We have a population the size of a medium USA city, we are spread out over a whole continent.
    I dont think we are the delicious candy bar Amazon thinks we are. They do know we have discovered the internet and online shopping – right? Anyone who is going to shop online, they are doing it already in USA and overseas shops. Why would they shop online in Australia, and pay more for something they are already getting from overseas? Amazon will not have USA prices for goods in Australia, so I don’t get it. And if they do, my old uncle Allan Fels will want to know more.

    Maybe margins will come in on some things: an SD card will be 5% cheaper – so I get to buy it for $8.50 instead of $9. What will happen is more variety of product, so Australian retailers are not going to go out of business, the market will get bigger. There will be a lot more affiliate sales out of China, which will be a short term thing because consumers like brands, it is a guarantee of quality.

    Reply
    • Bigdreamsaremadeofcheese
    • 11th January

    “Amazon are coming to Australia – awesome, they can play by Australian rules…start paying GST, set minimum wages, compulsory superannuation, limited commercial buildings: higher rent, high transport costs.”

    For years we know that multinationals are not playing by the rules. That’s why we are now playing catch up with legal reforms etc etc.

    Secondly Bezos is not stupid to structure his business to inherit the same cost base as the rest of the retailers. Instead he will make maximum use of technology to run a lower cost operation. He may even go radical and get drone deliveries to regions at the end of our metropolitan areas increasing delivery coverage and speed. Then watch Australia Post to traditional retailers including Coles, Woolies, HN squirm. Amazon will magnify the Aldi + Costco effect and as you know Aldi did not inherit the same cost base.

    Reply
  2. I really get annoyed when I see comments like “High Margins in Australia”. In CE circles, Australian Margins are paltry compared to those offered to USA retailers!

    And the cost of doing business in Australia is considerably higher than in the USA. Typically it costs some 30% or more to do business in Australia than in the USA. Check out Costco’s pricing, as an example.

    Yes Amazon will be a strong competitor, but they won’t be offering showrooms anytime soon. These same showrooms probably have employed one of your cousins or siblings to help fund them thru Uni.

    If you are lucky to live near to the Amazon Warehouse, or you work for a courier company, then there will be jobs to be had, but pity the poor little guy who diligently spends time to invest in new products to present to his or her clients, only to be “showroomed” by the not so loyal client, the same client that is going to complain about poor technical support services in the CE market place.

    Overall, I’m looking forward to Amazon coming, but I have a question, why does Amazon charge more for a book in AU than the same book in the USA?

    Reply

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