In the 2017 Black Friday sales Amazon dominated, claiming nearly half (45-50% according to The Street) 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 opperations 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 according to IBISWorld’s August 2017 Welcome to the Jungle report.
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 December 1st 2017.