The Amazon Effect

By Tina Zawila

If you haven't heard this expression yet, you will soon become familiar. However, I'm certain you are already familiar with the US business Amazon which celebrates it's 20th birthday this year.

Whilst Amazon has had a presence in Australia for some time via its technology subsidiary Amazon Web Services, there are plans to open local retail operations here in the near future.  In fact Amazon Prime (the company’s fulfillment arm which delivers the goods to customers) could be up and running by mid-2018.

So what does this mean for our economy?  Investment bank UBS estimates “the Amazon effect” will potentially strip 0.25% from the Australian Consumer Price Index.  Citi Research predicts that Amazon could capture about $200m worth of the Australian retail market, with JB Hi Fi, Harvey Norman, Myer, Super Retail Group and footwear seller RCG most exposed.

In the US, Amazon Prime membership costs US$99 a year, which entitles you to free shipping in two days.  The more you buy, the better the deal.  Interestingly, AusPost recently launched Shipster, a membership program offering free shipping on eligible purchases for spends over $25 at participating online stores.

Australia’s ecommerce industry is about to be turned on its head.  Amazon has always played by different retail rules - rather than being focused on short-term profits, it focuses purely on achieving market leadership and cash flow.  The Amazon model in the US allows it to make US$1.2m in revenue per employee.  In Australia, that figure is currently around $200,000 to $300,000 in revenue per employee.  That is a major cost disadvantage for the average Australian retailer.

When the UBS, CommBank Retail Insights 2017, Euromonitor report states that “70% of consumers say they’re likely to buy from Amazon platform”, it’s time for Australian retailers to pay attention and prepare a strategy to deal with the disruption of their industry.

At Sothertons Gladstone we help business owners plan for the future and develop strategies to ensure business sustainability and growth.  Call us today on 4972 1300.