Amazon’s Australian Expedition to Rattle Retailers

Key takeouts

• Amazon plans to disrupt Retail in Australia - 2018 planned date 
• 10X expected growth of online sales in Oz - from $400m to $4b 
• Planes trains drones and autonomous vehicles
• A massive warehouse/ fulfillment house in Sydney on the cards 
• Their are clear positives for Australia

 

Jeff Bezos's Amazon.com Inc. is preparing to bring its full retail offering to Australia, signaling a major disruption  to the country’s retailers and an important new beachhead for its global distribution network.

Some analysts say 2018 is a likely date - Retailers are a tad nervous

 

Australian  retailers have until now been somewhat insulated from the demise of brick-and-mortar stores that is  rippling across the U.S. - but this insulation is evaporating like the proverbial quicksand. 

Wesfarmers boss Richard Goyder, whose retail chains include Coles, Bunnings, Target and Kmart, has repeatedly warned that Amazon will “eat all our breakfasts, lunches and dinners”.

Woolworths Chief Brad Banducci said that retailers need provide the convenience their customers are demanding, or they will focus on alternatives like Amazon.

Retail analysts have forecast that a full-scale invasion could see as much as half of the earnings for leading businesses like Myer, David Jones, Harvey Norman and JB Hi-Fi transfer to Amazon.

 

These retailers need to take their heads out of the sand! It is for good reason that Credit Suisse analysts are pessimistic about their future! 

The Australian calls Amazon's entry a "shopping revolution" with the threat to Australian retailers being "stark with the threat of destroying traditional retailers which it has done in the USA"

"News" reports that according to Justin Braitling, an investment officer at Watermark Funds Management with inside knowledge of Amazon’s plans, the company “will be dropping distribution centres and performance centres in every state next year,” he told the Australian Financial Review this week. “They will also be putting physical stores on the ground which I don’t think anyone knows about,” Braitling said.

“We spoke to the guy rolling out Amazon’s business here in Australia and in his words: ‘We are going to destroy the retail environment in Australia’.”

A goal that will no doubt strike fear into the hearts of both small and large Aussie retailers.

Expected 10X Growth in Amazon Revenue from $400m pa to $4B pa

Macquarie's Equities  have estimated Amazon could surge to make 25 per cent of online sales in Australia by 2025. 

An analysis from Citigroup indicates that Amazon  currently do between $400m  to $700m of $300b of sales (of which 5-7% - $20b - is online ) with massive opportunity to cut through and grow sales exponentially.

If Amazon takes 25% of current online sales - their turnover is estimated to grow to $4b.

If online sales increase to 15% of total retail sales (as is in the USA , and Amazon takes a 25% market share - potential Amazon turnover  can grow to $8b!!

It is no wonder that Jeff Bezos and his team are licking their chops 

Is Amazon a “country killer” or a "country saviour?"

 

Australian retailers haven’t until now faced the kind of competition that would have forced them to invest heavily in their online offerings, says Citi retail analyst Bryan Raymond. Retailers in other countries have “been forced into it through Amazon or someone else pushing people that way.”

 

Currently, the Australian e-commerce market is small compared with the U.S., where online sales last year were estimated at $391 billion according to the U.S. Census Bureau, but the lack of a truly dominant online retailer suggests there is an opportunity for Amazon.

One measure from Citi gives Amazon 4% market share in Australia. In the U.S., Amazon’s share is 31%, Citi says.

 

Customer experience guru Joel Norton of Kalido speaking on CNBCs Sqwuak Box highlights that 43% of all online sales in USA is through Amazon, who sell more clothing than all retailers in the USA combined. He points out that Australian retailers are putting their heads in the sand at their own peril with on average only 5-7% of sales being made online.

Australian e-commerce sales lag behind other developed countries, so there could be room for growth, making Australia an attractive market for Amazon as it seeks to expand its international footprint. 

The Power and Pull of Amazon

A Nielsen survey has revealed that three-quarters of Australians aged 18 and above are interested in Amazon Australia, while 45 per cent would sign up for a paid Amazon Prime membership to receive special deals, discounts and delivery perks.

Nielsen Omnibus research shows that Amazon’s US site converts 49 per cent of Australian visitors into sales — the fourth highest behind eBay (78 per cent), The Book Depository (74 per cent) and The Iconic (53 per cent).

(Dana Mccauley from news )

Amazon in other Countries 

Amazon launched in Spain about five years ago, investing about $A700 million, including a head office, fulfillment centers and a tech hub for research. It now has 1000 employees and will be hiring another 600 this year. Customers in Spain have access to 175 million products and the Prime Now service which offers delivery within one hour.

The company is spending billions of dollars to secure growth in Mexico and India, and recently reupped its attempt to take on Alibaba Group Holding in China as it diversifies away from relatively saturated U.S. and European markets.

 

The Chinese market has proved tough to conquer. Amazon launched its Prime membership program there late last year aiming to capitalize on Chinese consumers’ desire for products from overseas, but it has been fighting to gain share against entrenched local incumbents. 

India has been more of a success story, where Amazon is one of two market leaders. Still, it is facing increased competition there too after No. 1 Flipkart Group’s recent $1.4 billion fundraising round.

 

Amazon has cited its rapid international growth as a reason for higher spending in recent quarters. The company takes varying approaches by market when it expands internationally and balances growth carefully with management bandwidth, said Chief Financial Officer Brian Olsavsky on a recent earnings call.

 

“We pick our spots carefully,” he added - and Australia seems to tick all the boxes 

 

Planes Trains  Drones and Autonomous Vehicles 

Australia could also fit into Amazon’s plan for a global transportation network that the company envisions will eventually compete with global logistics companies like United Parcel Service Inc. and FedEx Corp. It has said it is leasing 40 planes and purchasing thousands of branded truck trailers, as well as building its first dedicated air cargo hub in Kentucky.

 

Amazon has formed a team to look at the future of autonomous vehicles, and it has already completed its first commercial delivery via drone in the U.K.

Australia’s favorable regulatory climate is also likely to offer Amazon opportunities to test deliveries via autonomous drones and road vehicles. 

Australia last year rolled out new rules for remote-operated drones, and government officials are looking to develop national guidelines for autonomous-vehicle trials.

 

“Australia is clearly committed to testing drone delivery,” said Ben Marcus, chief executive of drone airspace services technology provider Airmap. There is a strong case to use drones for rural deliveries there, he said.

 

The country is nearly the size of the contiguous U.S. but has less than 10% of the people.

 

Jodie Burger, a lawyer with an aviation specialty at Corrs Chambers Westgarth in Brisbane, Australia, said she wouldn’t be surprised if Amazon began testing drone deliveries in Australia soon. “It’s ripe for the picking,” she said. “I don’t think it will be very long at all.”

 

Amazon declined to comment on possible drone or autonomous-vehicle tests in Australia.

 

An Amazon Warehouse and Fulfillment Centre in Sydney?

Delivery in 48 hours promise! 

As it builds out its network in Australia, Amazon will likely rely on its logistics network in the U.S. as a model—where big warehouses called fulfillment centers are strategically located near population centers. Amazon has said it is already looking for a fulfillment center location in Australia, with analysts saying Sydney is a likely starting point.

Amazon’s Prime membership program in the U.S. offers two-day delivery, with same-day delivery available in some areas. Amazon plans to fulfil this promise to the Australian consumer.

Although Australia’s vast size and rural areas could bring challenges, Amazon will likely first focus on the east, experts say, where the country’s three biggest metro areas, centered on Sydney, Melbourne and Brisbane, are located. About half of all Australians live in those metro areas.

Jeff Bezos has said it is looking for a 93,000 square metre warehouse and looking to add significantly to its existing 1000 employees. 

I have no doubts that NSW , Vic and Qld State Members of Parliament will be wooing Jeff Bezos. If they aren't - they should be! 

Side note with Ali Baba 

Last month, Ali Baba's Jack Ma was in Australia, looking to collaborate with Australian manufacturers to enter the China marketplace. 

Imagine if Ali Babs invests in Australian infrastructure to increase their presence in the Australian market place.

I think there could well be a land grab for market share to 2025 

The Positives for Australia

A spokesperson for the Amazon stated that the company is currently planning “to bring thousands of new jobs to Australia, millions of dollars in additional investment, and to empower small Australian businesses through Amazon Marketplace.”

 Sources say that Amazon has approached leading retail, supply and merchandise executives with job offers - a nice gig to have for a Recruitment Company! 

“We are optimistic that by focusing on the things we believe customers value most — low prices, vast selection, and fast delivery — over time we’ll earn the business of Australian customers,” he added.

Australian manufacturers and designers will have a significant opportunity to increase their footprint with this online retailer, putting to rest the current duopoly of David Jones and Myer when it comes to fashion and Coles and Woolworths when it comes to groceries. 

Amazon is planning to launch its first service, Amazon Marketplace, a sales and logistics system for third-party retailers, as early as this year.

It's been said that if you don't grow, change and innovate - you die!!

We live in interesting times - not sure whether this is  a curse or a blessing - what do you think? 

Sources

Sydney morning herald -  Amazon is coming to Australia http://www.smh.com.au/business/retail/amazon-is-coming-to-australia-with-low-prices-vast-selection-and-fast-delivery-20170419-gvo6lb.html via @smh

Wall Street journal - Appeared in the May. 18, 2017, print edition as 'Australia Beckons Amazon.By Mike Cherney and Laura Stevens

News -http://www.news.com.au/technology/online/jeff-bezos-his-controversial-empire-and-his-plan-to-take-over-australia/news-story/3e3489b63daee30120348bede9c6a534

News - http://www.news.com.au/finance/business/retail/australian-shoppers-are-ready-to-embrace-amazon-survey-reveals/news-story/24eddd0708b86e3d7e4ab270bf9db069

SBS http://www.sbs.com.au/news/article/2017/04/20/amazon-coming-australia-what-cost-local-business

The Australian - http://www.theaustralian.com.au/business/companies/fast-vast-and-lowpriced-amazon-to-shake-up-australian-retail/news-story/026ace527679086657bc156735863dc