Amazon Set to Shake up Local Retail Sector

By Prinitha Govender | 24 Nov 2017

Amazon’s launch will challenge the domestic retail market, lowering item prices by 30% compared to local retailers, as it is prepared to make initial losses to help it gain market share.

The imminent Australian launch of Amazon is mounting with the company releasing an email to its third-party sellers this week asking them to be prepared by 2pm Thursday 23 November for a soft launch of Amazon Marketplace. This move fired up speculation that the company will start trading on Black Friday or Cyber Monday to take advantage of increased Christmas spending, with local retailers on high alert as a result.

“Amazon’s imminent arrival into the Australian market is set to shake up the retail sector,” explains Kim Do, senior industry analyst for IBISWorld. “The company intends to challenge domestic retail prices by offering items for 30 percent less than domestic retailers. This is expected to appeal to price-conscious Australian consumers, and is likely to affect local retailers that have found it difficult to adjust to a shift in consumer spending behaviour over the past five years.”

With the entry of Amazon, the online shopping industry in Australia is expected to grow at an annualised 13.5 percent over the five years to 2017-18, to reach $20.1 billion. Although Amazon has largely kept its plans for the Australian market under wraps, IBISWorld says it expects Amazon will be prepared to make initial losses to help it gain market share within Australia’s online retail sector as quickly as possible.

“The company is expected to focus on providing consumers with low prices, a diverse product range and fast delivery,” explained Do. “However, to be successful in Australia, Amazon’s current business model will need to be adapted to the Australian market. For example, Australia’s large geographical size and dispersed population will lead to higher distribution costs compared with Amazon’s home market in the United States. This is likely to limit the company’s ability to offer Amazon Prime Shipping services in the short to medium term.”

IBISWorld believes department stores and electronic goods retailers are expected to be the hardest hit by Amazon’s arrival. IBISWorld’s data shows department stores are already struggling to attract consumer demand, with industry revenue expected to decline by an annualised 0.9 percent over the five years through 2017-18.

“Technology products are anticipated to be the highest selling category for Amazon, which will disrupt the electronic goods industry. Australian consumers are particularly price-savvy when it comes to electronic goods, and will often compare prices across multiple retailers to find the best value. As a result, Amazon is expected to take market share away from local electronic goods retailers such as JB Hi-Fi and Harvey Norman,” says Do.

While Amazon will no doubt disrupt the Australian retail sector, IBISWorld believes its entry will also bring some positive changes to Australia’s e-commerce landscape, including increasing the uptake of online shopping.

Currently, Australian online sales are expected to account for an estimated 7.4 percent of total retail spending, although this figure is projected to more than double to 15 percent by 2022-23. Amazon’s arrival can also be seen as an opportunity for existing Australian retailers, with the online retailing giant expected to help drive innovation relating to digital transformation, logistics optimisation and multichannel platforms. Amazon will also provide some retailers with another platform to sell their goods.

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