Amazon Is About To Kick Traditional Retail’s Butt

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We are at the dawn of a new era - and like the dinosaurs who just thought they were having an off day - many Aussie retailers aren’t going to know what’s hit them. In the coming months Amazon will start opening its online doors in Australia. And already locals are seeing an impact.

Australia’s favourite retail curmudgeon, Gerry Harvey, has seen $100M disappear from his personal balance sheet as the likelihood of his prediction that the internet would never amount to much for retail is slowly being shown to have been somewhat less than correct.

As we recently reported, it has been speculated that Myer could lose anywhere up to 55 per cent of its earnings over the next five years.

The old Myer cafeteria is going to need to sell a lot of bad coffee and “Frog in a Ponds” to cover those kinds of losses.

Credit Suisse says Myer could be just the tip of the iceberg with Harvey Norman, JB Hi-Fi, Supercheap Auto, Rebel and Amart Sports, BigW, Kmart and Target all tipped to see revenues smashed.

Credit: Credit Suisse

Officially, Amazon hasn’t made any announcements concerning its retail presence here. But recruiting for hundreds of workers suggests they’ll be here sooner rather than later.

An article at The Financial Review [subscription required] reported Watermark Funds Investment chief investment officer Justin Braitling as saying Amazon was planning to undercut locals by around 30%. Braitling used the word “destroy” to describe Amazon’s Australian ambitions.

It will be interesting to see what the retail industry does when Amazon arrives - I think we can dispense with the “if they’ll arrive”.

Past form suggests we’ll hear a lot of bleating and whining. Just like the brouhaha over forcing customers to pay GST on products that are purchased from overseas, I suspect we’ll see Gerry Harvey and his mates buying new megaphones so we can listen to them complain about how they’re battling.

Amazon’s founder Jeff Bezos has been quoted as saying “your margin is our opportunity” when undercutting prices in new markets the company expands into. And when you look at the Credit Suisse report, it's pretty obvious who the potential victims of Amazon's expansion are.

Credit: Credit Suisse

According to the report: "Almost anything that can be put in a small box is likely to be vulnerable to Amazon".

I wonder if the local retail establishment will get into the ACCC’s ear and try to push for a predatory pricing argument, saying Amazon’s purpose is not to compete but to eliminate or damage a competitor.

The ACCC has some specific guidelines regarding predatory pricing. The argument is that predatory pricing will force competitors out of business, leaving the “winner” to scoop up the market and then raise prices as there’s no competition to keep them honest.

I’m not a lawyer but given Amazon is a new entrant to the Australian market, it would be tough to make a case that a multi-billion dollar empire like Myer or Harvey Norman would be a victim of predatory pricing.

The reality is online retail has been a thing for close to 20 years. I suspect major retailers are looking at the bookshop business and see a model for what could happen to them.

My local shopping centre - which was recently expanded and is now pretty huge has just three bookstores - a Dymocks, a QBD with cut-price books and a niche store with some less commercial titles and a decent selection of graphic novels.

A decade ago, when the centre was much smaller, there were at least six I can remember.

Having many years to prepare for this inevitable storm hasn’t been enough for them to prepare their operation for a lower-margin world.

Amazon is coming. Local retailers can do their best King Canute but they aren’t going to stop the flow of customers rushing like a rising tide to Amazon and other overseas retailers that see the opportunities here.

Anyone who travels to the US will know we pay a premium for many goods here. Those days are coming to an end.

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An Amazon spokesperson has told Lifehacker "The person who made this statement, Brittain Ladd, left Amazon in February after just two years. He was never involved in our planning for Australia and has no actual knowledge of our plans. His comments do not reflect our views. Our focus is on providing the best shopping experience we can for customers all over Australia."

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Comments

    Is Amazon also bringing its on delivery system or is it going to put pressure on an already overloaded (Australia post/startrack) system?

    Much like what netflix did to the ozzie internet backbones, still has not recovered

    Last edited 22/03/17 12:57 pm

      I think Amazon will prey on the weak Australian logistics. Almost pointless for them to move into the Aust market and not to target that.

        I can't see them being able to offer free 2-day shipping as a Prime benefit in Australia like they do over here in the US as long as they've got to rely on Australia Post for a lot of the package delivery. They've got to be intending to shake up the logistics market at the same time.

          In Germany Amazon uses Deutsche Post's parcel subsidiary DHL...which also operates in Australia as a private parcel company...They could technically just leverage that (or another parcel company) and run all over AusPost...

            DHL are quite expensive in Australia, even by Australian standards. Also a bit crap.

            Over here in the US (I live in Seattle at the moment) USPS provides close to the level of service you'd get from most of the Australian courier companies (Saturday deliveries, sometimes Sundays). When they need to guarantee a delivery of something larger, they will also use UPS and they run their own logistics & delivery company that handles some or all of the shipping and handling as well - in those cases they can deliver as late as 8pm at night and on weekends. Any item offered with Prime has 2 day shipping for free, and out of about 300 parcels I've received only one didn't arrive on time. For some items they will offer next-day or even same-day delivery. This is leaving aside Prime Now (2 hour delivery!) or Amazon Fresh (grocery delivery by Amazon directly).

            I do have the benefit of living in the same city that Amazon is based out of so there's regional warehouses that they operate nearby that help facilitate this, but I've had packages delivered same-day from as far away as Iowa before if I order early enough in the day.

            A lot of the way they manage to do this is that they handle the shipping internally from warehouse to eg USPS, then hand over to USPS for the final delivery, i.e. if the item is in their warehouse in NSW and it needs to be delivered to Melbourne they'll fly it down to Melbourne and hand it straight to one of the main AusPost sorting facility. That way they don't need to pay AusPost's express delivery rates but can nearly guarantee the 2 day window.

            I imagine Amazon will probably start by setting up a couple of warehouses (probably initially targeting Sydney and Melbourne) and offering only a select list of products via prime, with 2-day delivery. Then they'll subcontract to whichever logistics company offers the best speed and price to them. As more products and sellers appear and their prime selection bulks up I'd expect they'd expand Prime offerings to more centers and start rolling out their own logistics as they do so.

      Think American not Australian. Amazon will be opening new opportunities for logistics operators in Australia not making life harder for auspost.

    I wonder if the local retail establishment will get into the ACCC’s ear and try to push for a predatory pricing argument, saying Amazon’s purpose is not to compete but to eliminate or damage a competitor.

    That's certainly an interesting way of saying "Gerry Harvey will inevitably throw a giant tantrum because his antiquated business model is threatened and will throw everything he and his lawyers have at the new competitor to try to ensure he doesn't have to stop price gouging the Australian public while trying to keep them in the technological stone age"

    Sunday opening and now Amazon?! Aussie retail entering the 2000's!

    With Amazons employment history in the US, I wonder how its going to sit in Australia as employment laws and unionisation is different here and in the states. I am expecting a lot of upset customers after a while, when strikes and demands for fairer pay kicks in.

      it's pretty obvious who the potential victims of Amazon's expansion are.

      Australian workers, their pay and conditions.

    Cry havoc and let slip the bargains of war!

    Last edited 23/03/17 2:47 pm

    Where do we get a hold of the report. I see you have pretty graphs that I haven't seen in other stories yet.

      The report was distributed directly to media. I haven't seen it in the public domain or even referenced on the Credit Suisse website yet

        Damn. Yea I've been watching their website but hadn't seen anything pop up.

    Amazon "is about to"? You must be new here

    I wonder though how much of the reason Amazon is able to have such low prices in the US is because of the wages they are required to pay, and what effect Australian working conditions would have on that??

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