Has one year in for Amazon Australia rocked retail off its axis?
Amazon launched in Australia exactly one year ago this week. Its aim was to rattle cages and change the game for retail down under. Has it done this? Well, not yet – but we’re not far off.
There’s no doubt that Amazon has revolutionised the global retail scene by making the experience so easy for customers. It has taken big data insights to the next level by creating end-to-end solutions that predict what you’re craving to buy before you know it.
So there was some fanfare when Amazon launched a specific offering in Australia – with consumers looking at Amazon US’s convenient ordering and customer service, and assuming the same level of service would be offered here.
The snag was it didn’t match.
“I think there was an expectation set up that it would be able to offer its full service very early on, so analysts are saying that it hasn’t lived up to expectation,” retail expert and CEO of The Retail Doctor Group, Brian Walker, told The Pulse.
“That assessment is correct, but Amazon was never going to hit that expectation because it takes a very staged approach to new country entry.”
So far, Amazon has set up the one outer Melbourne fulfillment centre and it’s slowly added categories such as auto and pet food.
It didn’t launch with full inventory or the expected convenient Prime delivery service – and consumers were cranky.
“When it entered, it had strong brand recognition – but it’s failed to make major announcements as it progressed into the Australian market. That may be doing them a disservice,” QUT’s Associate Professor in Marketing and International Business, Gary Mortimer, told The Pulse.
“There’s a real consumer appetite for how Amazon is expanding and growing in the market. But at the moment, you need to look very hard to see what new categories it’s putting on, you need to look hard to see what’s changing in their model.”
But going slow was always in the playbook for Amazon.
The game plan
The thing is Australia is massive, with people spread far and wide. Cracking Australia would always be a slow burn. With its deep pockets, that’s something Amazon can do.
The basic Amazon game plan in each market can be boiled down to these goals:
- Offer a small marketplace
- Grow that marketplace by slowly adding categories
- Build distribution and fulfillment centres
- Get Alexa into homes
- Build out Prime offering with heavy marketing
It’s now in the early-ish stage of its game plan, which is why Walker has given Amazon a pass mark.
“The key driver for Amazon’s success in the US is that 52 percent of all Americans have Prime at home. That’s after years and years of being in that market. In terms of the first year of Amazon being here, I’d say they’re fairly well on pace, given Prime hasn’t been widely available here,” he said.
“They haven’t yet influenced Australia’s consumer lifestyles – and I think they’re going to find Australia harder because of the tyranny of distance and the increased freight costs.”
It’s deliberately been a slow-go by Amazon in Australia, but has the hype (rather than the sluggishness) affected other competing retailers?
The retail impact
While Amazon’s arrival into the Australian market infused an existential dread for Australian retailers, they’ve responded fairly well.
“I really don’t think it’s had a significant impact in the Australian market so far,” said Mortimer.
“Certainly pure-play retailers like The Iconic would have been worried to some extent given that Amazon may have come in with a fashion offer, for example. The one thing we failed to discount in the narrative is that shopping is fundamentally a social experience.”
Despite all the noise about online shopping as the de facto mode of shopping these days, bricks and mortar retail still has a substantial lead over online shopping.
“While Aussies spending 26 to 28 billion dollars online every year may seem like a lot, it’s only 8.5 percent of all retail spending,” said Mortimer.
“We’re still spending 90 to 92 cents of every dollar inside a physical store. Online’s slightly higher for certain categories like toys or automotive – but if you look at food, it’s only 3 percent.”
That isn’t to say retailers here have rested on their bricks and mortar laurels.
“There are quite a few retailers here who are ramping up their business information systems to focus on data – getting into segmented marketing and investing in machine learning,” said Walker.
“They’re on that journey, so I think in the next two or three years, we’ll see a lot more AI and machines in the retailers’ armoury. So more advanced retailers will be using analytics in a far greater way and, in that sense, mimicking the work that Amazon does.”
So both Mortimer and Walker say retailers have responded to the threat of Amazon and the more fundamental shift in consumers’ expectations. Can the same be said for smaller retailers?
Amazon and small business
Big data-crunching analytics and building same-day delivery capability is usually the domain of retailers with deep pockets and patience.
The fear is that smaller retailers won’t keep up with the pace of innovation in the sector. Those big players will drive customers’ views of what retailers should offer.
While retailers have access to clever business analysis tools – they’re not the scale of a behemoth such as Amazon.
If you’re a smaller retailer offering goods which are offered by bigger retailers, you may be in a bit of a pickle.
Those smaller retailers with a unique experience would be the ones setting themselves apart.
“When we look at models like the Amazon model, we start to see (as we do with Alibaba) this divide between what we’re calling shopping and buying,” said Walker.
About half of Amazon’s inventory is re-sell stock. Retailers who sell things which are widely available on eCommerce sites such as Amazon may be in trouble because Amazon can scale up big time.
But if you offer a great experience (whether that’s online or in-store) you’ve got a survival strategy.
Shopping is still a social experience. Amazon works because it sells at scale, meaning it can sell for less and invest in quick delivery and AI to deliver a better online experience.
Not because it’s an experience filled with warmth and humanity.
“For smaller retailers, it’s about focussing on that point of difference – it’s about creating a great service with great people. Some retailers now are taking a much stronger focus on educating their customers and coming at it from a point of view of helping them, rather than just focussing on add-on sales,” said Walker.
“From there, it’s about building a database and building a relationship with your customers – and doing that as humanly as possible.”
Good ol’ fashioned customer service is in vogue.
There’s no escape from Amazon having nestled in deep in global retail, as it will do in Australia while it builds its proposition. Retailers willing to invest in the customer experience as their core have a future.