Everyone’s favourite retail curmudgeon Gerry Harvey can’t help it. The man who once said online retail will never succeed is saying Amazon’s local ambitions, to be operational in Australia next year, are unlikely to pan out. I think he’s forgetting something; Amazon doesn’t have to build what it can buy.
Harvey was interviewed by Fairfax and made some interesting comments. For example, he said:
“For their model to work they would need 50 warehouses in Australia. Start with two – one in Sydney and one in Melbourne – and then it’s how do you deliver? That’s the best-case scenario.”
Just last week, Amazon purchased Whole Foods for US$13.7 billion. What’s that tell us? Amazon has two modes for business expansion; it can build things (like the Echo or its online retail platform), or it can buy existing services and companies in order to accelerate its plans.
If Amazon needs, as Harvey suggests, 50 warehouses, it has more than enough money to purchase or lease that number. The same goes with a logistics network, to distribute products to customers.
As I reported back in March, Harvey Norman is expected to take a hit of between three and nine per cent when Amazon hits the market. To be fair, Harvey Norman isn’t directly in Amazon’s firing line, at least initially. The kinds of goods Amazon does best at have a small to medium cost and are relatively easy to ship. I imagine there will be a time when we’ll buy lots of furniture and whitegoods from Amazon, but for now, I doubt that will be the big focus for the company.
Some of the issues Harvey notes aren’t unknown. In a recent interview, Couriers Please COO Hoy Yen Hooper pointed out that Australia’s sparse population and broad distances will challenge Amazon in establishing a logistics network.
I expect that before this year is out, Amazon either will drop a billion or two purchasing an existing logistics company with warehouses, a struggling retailer that has the infrastructure Amazon needs, or setting up deals that will cover them for up to around five years while they build their own capability.
Jeff Bezos isn’t a fool. Amazon’s path to where it is today might have started by having the right idea at the right time, but the company’s extraordinary growth and success has come from making smart decisions and wisely investing resources.
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Gerry Harvey isn’t a dill either. He’s talked up a pretty good game over the last decade as competition, both from overseas and domestically, has increased. Over the last half-decade, the share prices has been reasonably steady although the last couple of years have shown a decline as competition has heated up.
Interestingly, news of Amazon’s acquisition of Whole Foods has spooked the local market with retail share prices getting hosed according to Business Insider.
Amazon’s entry to Australia has the potential to make things a lot better for consumers. If it drives Australian retailers to lift their game, then that’s another big plus.