The expansion of US online giant Amazon in Australia will most likely be a game-changer in the country’s retail landscape, transforming the way we shop and threatening the supremacy of established local retailers.
“We are going to destroy the retail environment in Australia,” an Amazon executive behind the Australian roll-out told Justin Braitling, the chief investment officer at Watermark Funds Management, late last year.
Australians, of course, can already buy a limited range of items from Amazon.com.au. Presently these are mostly limited to entertainment, including Kindle e-books, audiobooks, e-readers, and some items on the streaming site Amazon Prime Video
So what will be available when Amazon rolls out its full suite of retail services into the Australian market? Perhaps an easier question is: what won’t be available?
The US Amazon site offers almost everything, such as groceries, beauty products, wine, clothing and fashion, furniture, musical instruments, pet supplies, appliances, and power and hand tools. Type any search item into Amazon’s US site, and odds are it will be there, and at a heavily discounted price.
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Before launching its operation in Australia, it’s understood Amazon will go through and collect price-points on everything, before setting prices at a 30 per cent discount.
The roll-out here is expected to be gradual, with an initial focus on consumer and home electronics, including non-perishables, such as canned food and other household necessities.
But the US provides a glimpse of what the future could look like in Australia.
Customers in the US who sign up to Amazon Prime, for an annual cost of $US99, receive free, two-day shipping on items; unlimited access to Amazon Prime Video, similar to Netflix, with a library of movies and television shows; unlimited access to Prime Music, a music streaming service; the ability to borrow books from a Kindle lending library; and access to a restaurant meal delivery service in major cities.
Amazon Prime members can also access Prime Now, offering free delivery within two hours in certain locations.
For an extra $US14.99 (NZ$21.30) a month for an Amazon Fresh membership, a customer can order their groceries or other items from supermarkets and shops in major areas and have them delivered within hours.
About 60 million US households have signed up for Amazon Prime.
Amazon has $US1 of every $US2 of e-commerce sales in the US and its market share is growing 20 years after it was founded by Jeff Bezos.
How it works now in Australia
Determined Australian bargain-hunters can already buy items from the US Amazon store that aren’t available locally, but it can be a time-consuming and more expensive process.
Amazon will often refuse an Australian billing address or credit card when an attempt is made to buy from the US site, but third-party forwarding businesses have popped up to fill this void.
Shoppers can sign up to these businesses, which provide an intermediary US address, from which the item will be forwarded to Australia. To skirt around the billing problems, Australian shoppers pay the intermediary business, which then pays Amazon on the shopper’s behalf.
Essentially, Amazon’s further expansion into Australia will eliminate this prolonged process. Local warehousing will dramatically slash delivery times, shaking things up for established retailers.
Amazon already does A$1 billion (NZ$1.07b) in sales in Australia by shipping from overseas, according to analysis by Morgan Stanley.
How will the new process work?
Amazon has confirmed it is actively looking for a warehouse, the first of many in Australia, with floor space of up to 93,000 square metres, or about five MCGs.
A decision hasn’t been made on a location but it is likely to be in Brisbane, Sydney or Melbourne.
The news was confirmed with a brief written statement from the company overnight.
“Amazon Web Services launched an Australian region in 2012, we launched a Kindle store on amazon.com.au in 2013 and we now have almost 1000 employees in the country,” Amazon said.
“The next step is to bring a retail offering to Australia, and we are making those plans now.
“We are excited to bring thousands of new jobs to Australia, millions of dollars in additional investment, and to empower small Australian businesses through Amazon Marketplace.
“We are optimistic that by focusing on the things we believe customers value most – low prices, vast selection, and fast delivery – over time we’ll earn the business of Australian customers.”
There has been previous speculation that Amazon would start rolling out its services in September.
Amazon Marketplace, whereby small players can sell their wares on Amazon, will also be a focus in Australia. Some Australian businesses are already using this via the US to gain access to international markets.
Damage to local retailers
Late last year, Braitling warned of the impending damage to the profit margins of local retailers from the arrival of Amazon in Australia.
“They [Amazon] will be dropping distribution centres and performance centres in every state next year,” Braitling told The Australian Financial Review.
“They will be doing general merchandise and they will be doing fresh as well.
“They will also be putting physical stores on the ground which I don’t think anyone knows about.
“These will mainly be in regional areas because fulfilment is a lot harder in regional areas than in the cities.
“We spoke to the guy rolling out Amazon’s business here in Australia and in his words: ‘We are going to destroy the retail environment in Australia.’ “
The fund manager has been told that Amazon sees enormous potential in Australia because it believes prices are way too high.
Amazon’s motto in relation to Australia is along the following lines: “Your margin is our opportunity.”