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Amazon will change Australian retail – but will it be good for you?

Stuart Ridley
Business and Technology Journalist

Stuart Ridley is the Smarter Business™ Print Editor and has covered trends in small business, tech and marketing for two decades

Stuart Ridley
Business and Technology Journalist

Stuart Ridley is the Smarter Business™ Print Editor and has covered trends in small business, tech and marketing for two decades

Highlights
  • Jeffrey Cole is a research professor at the Center for the Digital Future at the USC Annenberg School for Communication and Journalism in Los Angeles
  • He’s advised governments and many of the largest companies globally on craft digital strategies.
  • 37 per cent of consumers expect fulfillment via marketplaces such as Amazon and Catch of the Day. 

Digital futurist Jeffrey Cole shares insights from his research into online and bricks-and-mortar retail with Stuart Ridley.

At first glance, Australia’s land mass presents major challenges for anyone wanting to deliver products. But with most of our population clustered in and around a handful of cities, this great brown land is actually ripe for e-commerce.

Enter Amazon: after several years of speculation the e-commerce giant launched in Australia just in time for the November 2017 cyber sales. While it offered limited stock to limited customers from its Melbourne fulfilment centre and had just acquired a Sydney location, if the launch was soft, Amazon’s aspirations aren’t – it has already fine-tuned the logistics smarts and ultra-low margin operations that made it so dominant across the huge US market.

37 per cent of consumer expect fulfillment through marketplaces How will Amazon affect your business?

Amazon’s arrival in Australia provides retailers with a new platform to distribute their products from. The 2018 Telstra Small Business Intelligence Report found that 37 per cent of consumers expect to be able to purchase through marketplaces such as Amazon or Catch of the Day.

In the 2017 Black Friday sales Amazon dominated, claiming nearly half of all sales.


So how should Aussie small businesses react?

According to digital futurist Jeffrey Cole, who has published The Digital Future report since 2000, businesses interested in e-commerce might want to explore the Amazon option.


“Being with Amazon doesn’t destroy your core business – you should still build up your own channels – Amazon just gives you another way to reach new customers,” he explains. “I think it’s worth looking at being an affiliate.”


In the US, Amazon has been criticised for its ‘above the market’ approach, epitomised by its willingness to lose money on delivery and even price some items well below recommended retail, but Cole expects operations in Australia to be less aggressive. Still, Amazon’s low prices and cheap or free delivery could be a knock-out blow for some retailers because, like it or not, that’s what Australian shoppers now expect.


The consumer data in The Digital Future report shows US consumers spent an average of US$117/month online, and would spend more if their top three demands were met: better prices, faster delivery and cheaper delivery. Amazon has form in all three.

The three big shopping trends

Shoppers are already used to jumping online to get a winning combination of low prices and cheap (or free) delivery, but from his extensive international research, Cole expects we’ll see a lot more of these shopping trends:


More undercutting to score bigger overall sales. “What we’ve seen with Amazon is, to start with, it’s willing to lose money on some items to get bigger baskets and more sales overall.” Amazon discounts could be as much as 30% below prices offered by domestic retailers. 

More ‘showrooming’ via mobile phones. “People go to a store, spend 20 minutes with the salesperson looking at a television set, then without even waiting to leave the store, pull out their phone and try to buy it online. The stores have no choice but to match those prices and conditions.”

More click-and-collect. “Supermarkets, stationery suppliers and hardware stores all have big click-and-collect plans.” 

Given these trends, there are two strategies store owners may want to consider that will bring customers to the door:   

Make in-store click-and-collect more attractive – offer customers an incentive such as a discount, value-add service or bonus product to pick up items they’ve ordered online at the bricks-and-mortar store. That way, they’ll walk through the store and potentially buy more while collecting their package. 

Make pick-up for commuters easier – give commuters an option so they can collect their online orders on the way home without even getting out of their car, just like drive-through food.   

“Is human nature in Australia different from American human nature? I suspect not,” observes Cole. “[In the US] we also have great nostalgia for the smaller merchants in our communities.”   

However, huge retailers such as Amazon and Costco meet two basic needs: they’re cheap and they’re convenient. Indeed, Cole’s research into Costco found that the chain’s eight stores in Australia are already some of its most successful in the world.   

It’s a tough call for small businesses competing against giant retailers, but Cole suggests two ways that smaller enterprises might swing the odds in their favour:   

Sell something the big players don’t have – businesses that design, make and sell their own products have more opportunities to stand apart. Some specialist brands also offer unique product lines in each of their online channels (e.g. Amazon MarketPlace, eBay, etsy) to attract different groups of customers.     

Band together – independent supermarkets might be able to reclaim customers by sharing marketing and buying power to offer good prices on more interesting stock than the big players (and possibly by taking a hit on staples such as bread and milk). IGAs for example, regularly promote local and specialist products (particularly in the artisan and fresh food categories) from suppliers that don’t have the scale and resources to get into the massive chains.   

But it’s not only small businesses that are facing competition from Amazon. “Interestingly,” Cole notes, “Amazon in the US is inflicting immense pain on Walmart (on latest reports, the world’s highest-earning retail chain), so the big chains are getting what they deserve.”   

*Originally published: April 7th 2016. Updated June 15th 2018.           

 

1 The Street – Amazon’s Blowout Cyber Monday Sales Bode Well for Its Fourth Quarter Results – 28 November 2017 

2 Center for the Digital Future – 15th Annual Report on the Impact of Digial Technology in the US 

3 IBISWorld Media Centre – Welcome to the jungle: Amazon comes to Australia – 29 August 2017  

Using fulfillment services can make it easier for small businesses to attract customers

The 2018 Telstra Small Business Intelligence Report found more than one-in-three customers expect to be able to purchase products through online marketplaces.

Download free report

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