It is now certain that Amazon will be setting up operations in Australia. Yesterday, the shopping giant announced plans to open a 24,000 square metre fulfilment centre in Melbourne. By this time next year, Amazon expects to be fully operational. But there’s still much we don’t know. Here are six burning questions that Amazon needs to answer.
The Australian rollout is now inevitable, but the logistics of the operation remain shrouded in mystery. Will Amazon pay GST? Will access to the US store be blocked? And how will its delivery system work over here? Let’s take a look at these questions, and more.
#1 Will Amazon’s prices be cheaper because they’ll bypass paying GST?
Once Amazon starts trading in Australia they’ll be collecting GST and sending it to the ATO just like any other business. The ATO is very clear about that. Assuming they turnover more than $75,000 per financial year, they’ll be on the hook for GST collection.
The government made changes in the last budget so that overseas companies doing more than $75,000 of business here should be collecting GST. The new rule was even called the Amazon Tax.
If Amazon’s prices are cheaper, it won’t be because of GST, despite Gerry Harvey’s complaints to the contrary.
#2 Will access to the US store be blocked?
There are already a number of items that can’t be purchased in Australia from Amazon – mainly electronics and books, movies and music where distribution arrangements get in the way of free trade.
I suspect some of the issues will come down to individual product manufacturers and the distribution deals they have here.
For example, KitchenAid mixers are far cheaper in the US than locally. There was a time you could order them online from US retailers like Macy’s who would ship them here, undercutting the local distributor by about 50 per cent – even taking into account the need to buy a transformer as those mixers were made with scale-specific power supplies. That stopped when the local distributor cottoned on and had Macy’s stop shipping the mixers and accessories to Australia.
I doubt access to the US store will be blocked but I suspect the range of products available from the US or other international Amazon stores will be limited against what will be locally distributed.
#3 Will we get slugged with an ‘Australia tax’?
Amazon founder Jeff Bezos once said: “Your margin is my opportunity”. If Bezos is true to his word, he’ll be looking to undercut local prices wherever possible.
However, all importers and overseas retailers hedge their pricing against currency fluctuations. There’s no reason to think Amazon won’t do the same for goods that are sourced outside Australia.
Will this make some items more expensive here? Almost certainly. But there will be instances where local prices will be cheaper than the US if you take into account the spot price of currencies.
#4 Will Amazon crush Coles’ and Woolworths’ dominance?
Not for a while. While we expect AmazonFresh will be part of Amazon’s Aussie thrust, we still seem pretty committed to the local supermarket. IBISWorld says online grocery sales are growing by almost 16 per cent year on year.
Amazon will bite into those sales. If Amazon engages in an aggressive price war, I suspect we’ll see the number of people shopping for groceries online sharply rise, and supermarket sales to take the hit.
Aldi has been the most successful challenger to the Woolworths and Coles dominance. But they are playing a long game, establishing supermarkets in new suburbs, and by supplementing their house brands with some more well-known local ones.
Coles and Woolworths aren’t going anywhere soon but they are going to feel the pinch. And that’s good for consumers.
#5 Will Amazon open bricks and mortar stores?
Brittain Ladd, a former senior manager on a small group inside of a very large team working on Amazon Fresh and Pantry operations, said the company will “build physical grocery stores and launch Amazon Go only after Amazon has become more established in the country and analysis determines the market will support physical stores.”
In other words, maybe yes, but not for a while.
What about delivery logistics?
I hope they establish their own delivery service. I have nothing but trouble with Australian courier services who can’t tell me when they’re likely to arrive.
My partner shops with one of the Big Two local supermarkets and gets her groceries delivered each week. She chooses the delivery day and a four hour delivery window that suits her. That day, she gets a notification with a more precise 30 minute delivery window.
That’s a decent level of service that Amazon will need to equal or surpass.
To do that for groceries, they’ll need their own distribution centres, trucks and drivers. The process for setting up that infrastructure has commenced with Amazon leasing a warehouse in Melbourne’s south – a facility previously used by Bunnings. This flies in the face of Gerry Harvey’s prediction that it will take Amazon years to set up the infrastructure it needs.
With non-perishable items, I suspect they’ll use traditional delivery services but, as they build their own local fleet, they will use that more and more to ensure they get the most value from it.
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.Read more
What are your thoughts on Amazon in Australia? Share your opinions and questions in the comments section below!
Note: Amazon has contacted us and said that Brittain was not “an ex-senior manager at Amazon who was instrumental in global expansion planning”. The article has been amended to state he was “a senior manager on a small group inside of a very large team working on Amazon Fresh and Pantry operations”.