LBA: Losses by Amazon

Natasha Sholl By Natasha Sholl | 02 Apr 2019

As always, it’s still “day one” for Amazon. But what does its $5.3 million reported loss really mean for the marketplace (and Australian e-commerce)?

It has been revealed that in the 12 months to December 2018, Amazon Australia generated $292 million in revenue, with an after-tax loss of $5.3 million, according to documents lodged by Amazon Commercial Services (which operates Amazon’s Australian e-commerce operations).

For the same period last year, Amazon Australia posted an $8.9 million loss from a revenue of $17,381,136.

The marketplace launched to Australia in December 2017 amidst a mass of what could be described as equal amounts of hysteria and indifference.

So what do these latest figures tell us about Amazon’s continued attempts to make its mark in Aussie turf. It’s not uncommon for Amazon to report losses for several years in a row when entering new markets (the company first traded publicly in 1997 and didn’t turn a profit until 2001).

When Amazon first launched to Australia it did so in relative silence, preferring to let the industry do the talking (sometimes screaming) for it. It appeared not to have any desire to control messaging of its launch, preferring to let its entry speak for itself. Yet the last year has seen a completely different strategy, and this seems to be reflected in its spending increases. In 2017 the business spent $1.7 million on marketing activities, and that figure jumped to $68 million last year. This is also timed with the strategic rollout of other elements such as Fulfilment by Amazon and Prime which are huge loyalty drivers for the marketplace.

“We have been delighted with the response from customers to our Australian offering, and to the number of products, services and categories we have added in our first year,” a spokesperson for Amazon told Power Retail today. “This has included growing our selection to over 100 million items across 29 categories; launching Prime with the most extensive suite of benefits for any launch globally; opening two fulfilment centres in Melbourne and Sydney and growing our support of the communities in which we operate; supporting small and medium businesses through the launch of Fulfilment By Amazon, allowing them to focus on product innovation and retail; and bringing Amazon Music Unlimited and Alexa-enabled Echo devices to Australian customers.”

“But it’s still day one and we’re just getting started,” Amazon adds. “Our focus is on continuing to grow our offering for Australian customers and investing in our local business, creating jobs and economic opportunity for thousands of small businesses across the country.”

This time last year it reported 10,000 third party sellers in Australia, but has yet to release updated figures or the number in relation to FBA. The annual accounts indicate it made $4.3 million from subcription services over the past year.

Prior to Amazon’s launch, much of the frenzy related to speculation that its plan would be to compete on price alone and undercut retailers. The last year of trade shows that its strategy is not merely price related. “Power Retail’s most recent Spotlight Series Report, Discounting: A Race to the Bottom? identified that 80 percent of Australian shoppers price check and most have found that Amazon Australia is not consistently cheaper than established competitors,” says Mark Fletcher, Insights Manager at Power Retail. “Until it achieves that reputation, it will continue to struggle to gain loyalty from Australian online shoppers.”

In fact, Amazon is often beaten on price by many of the large players in many key categories. It does however seem to undercut other retailers when selling its own brand products, a pattern that we have seen from its overseas presence.

For the Australian landscape, Amazon has definitely made its mark, but in a wider frame than merely the marketplace itself. In the last year we have seen rapid growth of the Catch marketplace, the launch of the Kogan marketplace, and the growth of marketplaces generally. eBay has evolved its offerings and even overseas marketplaces have upped their cross border strategy to appeal to Australian shoppers.

So, what do these latest figures reveal about Amazon? Nothing we didn’t know already, really. Amazon still has a long-view when it comes to its growth, and while it has made massive gains in the space and expanded its offerings relatively quickly, we know there is much more up its sleeve for retailers and consumers alike.

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