After months of teasing, Amazon will “greatly expand” its online offer in Australia over the following year. The move was called to “decimate retailing as we know it”, but the sky won’t fall in. Our shopping centres won’t shut and retail will remain.
Shoppers in Australia spent only $21.65 billion online last year. While that might seem like a significant amount it only represents 7.1 percent of what was spent in “bricks and mortar” stores. And as a consequence of a weak Australian dollar, 80 percent of the money spent online last year was with Australian merchants and online stores.
Meanwhile, US$117 billion was spent online in the US last year and £133 billion was spent online in the United Kingdom.
But ecommerce is also not the juggernaut it was. Globally, growth of internet shopping has slowed as department stores, supermarkets and other retailers saturate this channel. In markets where Amazon features services such as Amazon Fresh (groceries), Amazon Prime (free delivery and streaming) and Prime Now (express delivery), sales growth has slowed.
The challenges
There are also other challenges for Amazon attempting to conquer the Australian industry. Consumer habits, perceptions of risk, market size and distribution among them.
Shoppers are creatures of habit. We generally shop with the very same retailers, buy the very same brands and invest a spend sum of money each month. Research has shown that infrequent online shoppers will continue to be infrequent online shoppers. Non-users will continue to be non-users.
Many consumers still avoid online shopping, worried about credit card fraud, quality and returns policies. Not having the ability to touch and try on new season women’s wedges before buying presents a real barrier to e commerce, as do long delivery times, delivery fees and currency changes.
As much as online grocery shopping is concerned, study has indicated that only 3 percent of customers shop online for their meals and supermarkets. And this industry is already well serviced by a huge array of players, from Coles and Woolworths through to pure-play online grocers such as Aussie Farmers Direct, Grocery Run and Kogan Pantry. Amazon will have to come to the market with a substantial offer to convince this little group of incumbent shoppers to change.
The online purchase of clothes, accessories and footwear has increased substantially from the Australian marketplace, representing 16 percent of earnings in physical stores. These sales are driven through set brands, discount department stores, global entrants and pure-play retailers such as Net-a-Porter, Shoes of Prey and The Iconic. But lots of these companies may also decide to market their merchandise through the Amazon “market”, which would indicate no substantial loss of earnings to brands, but simply a change between channels.
Retailers need to accommodate
Consumer Electronics and toy retailers might be the most vulnerable to Amazon’s arrival. When you’re shopping for toys it matters little if you’re purchasing via Amazon or Big W, it only comes down to price. Using its economies of scale, Amazon will win on price. Likewise, consumer electronics. A digital camera is a digital camera, whether it’s bought through Harvey Norman or even Amazon.
But as it stands, Amazon still seems a way off. Operationally, there’s very little sign of Amazon setting up warehouses and other infrastructure, or recruiting pickers and drivers necessary for such a massive operation. Although all of this is set to occur, we’re told, in the upcoming few months. So for now, you can stick with your favourite retailers to shop for a new pair of tie up sandals.
Ultimately, Amazon will not kill Australian retail. Australian retail will kill itself if it does not adapt to an ever-changing consumer and concentrate on experience over cost.
