By the end of 2015, Amazon became the fastest ever company to reach US$100b in sales revenue. Today, Amazon is the fourth-most valuable publicly traded company (after Apple, Alphabet, and Microsoft), and accounts for more than half of total online sales growth and ~5% of total retail spending in the US – so it is clearly a company that is doing a lot of things right.
Up until today (5th December), the Australian Amazon offering was limited solely to books and e-Readers, leaving local consumers envious of their US counterparts.
However, with the fully-fledged Amazon offering being launched just before the busy Christmas period, consumers now have a new go-to source to research, compare prices, and purchase products from.
But what does this mean for local businesses who previously didn’t need to contend with the eCommerce giant? How can they compete with a company that is happy to loss-lead a huge portion of its inventory to attract new customers? The trick is to understand what makes Amazon such an appealing offering, and adapting to the inevitable change that Amazon’s Australian introduction will bring.
Founded by Jeff Bezos in 1994 purely as an online bookshop, Amazon has grown to be much, much more than that, and is now the second-largest eCommerce platform in the world. Not only does it sell brand new retail merchandise itself, Amazon also operates the Marketplace platform – allowing third-party sellers to sell new or used products (similar to the eBay experience). Marketplace currently makes up more than half of Amazon’s total output, and is being included in the Australian launch.
Since 2005, Amazon has also offered the Prime membership program, which includes 2-day delivery (in CONUS, for now) with a range of entertainment and streaming media options. It also now operates Amazon Web Services, a cloud-based enterprise-level computing service.
While Amazon has certainly existed for Australian shoppers in the past, it has only been for those wishing to purchase books or pay exorbitant shipping fees from the US. After successfully opening its “doors” to the UK, German, and Japanese markets before 2000, and additional European, South American, and Asian markets ever since, Australia was deemed to be the next worthy contender for expansion.
There is no doubt that Amazon’s new presence in Australia will affect local retail — that’s what disruptors like Amazon do. The impact on Australia’s larger retailers such as Myer, JB Hi-Fi, David Jones, and Harvey Norman will be large.
According to an analysis performed by Credit Suisse, Amazon is projected to reach a >5% market share in many retail categories in Australia by 2023. However, it will inject a plethora of new, locally-sourced jobs into the economy (the company has already begun a recruiting drive across a range of different verticals, from pickers & packers to operations managers, systems technicians, and HR specialists).
With that said, it’s clear that local, price-driven retailers will need to adapt if they hope to compete. Just this month, we’ve already seen JB Hi-Fi unveil their same-day delivery and three-hour delivery options in a positive move to combat Amazon’s presence.
Large retailers of consumables (such as Officeworks) are the most at risk with the entrance of Amazon in the Australian marketplace. If customers are able to find something cheaper through Amazon, then it’s likely that everyday items like pens, washing powder, and coffee pods will be purchased from there instead.
Despite all the perceived doom and gloom for Australia’s larger retailers, small enterprises that offer unique or hard-to-find products could benefit by selling their wares through Amazon, using its class-leading logistics capability to deliver to a huge global consumer base. It’s also worth mentioning that Amazon is constantly innovating and updating its business model in response to new technologies and changing lifestyles, and this is what has made it so successful.
For the businesses where the “if you can’t beat ’em, join ‘em” mentality is eschewed, smaller retailers can easily live with — and beat — Amazon simply by providing exceptional, personal experiences that make the (potentially) higher pricing worth it.
One thing is for certain: Australian consumers are likely to benefit from the added competition that Amazon will bring.
The Amazon Marketplace provides a model where other businesses can use Amazon to sell their own products and set their own pricing. They are then responsible for controlling their own inventory and sending the orders out to customers. Essentially, the Amazon Marketplace is no different to how Australian retailers can currently sell products on eBay.
The primary difference between eBay and Amazon, however, is that eBay shoppers love low-priced items and great customer service, while Amazon shoppers love great value (not just cheap products) and fast, free shipping.
In order to rank well on eBay, the two basic factors that will determine a product’s position are its price and the seller’s rating (out of five stars). Amazon, however, utilises a more complex algorithm (the Amazon Sales Rank [ASR]) that is more akin to that of a typical search engine*.
At its most basic function, the ASR provides an indication of the popularity of a product, and is updated hourly — effectively a real-time bestseller list for the millions of products stocked by Amazon. While the ASR can’t exactly have a direct impact on the sales performance of a product, it is used by Amazon to determine which products to include in its bestsellers lists, which enjoy constant site-wide exposure. Additionally, products that experience significant jumps in their sales ranks may be included within Amazon’s “movers and shakers” lists.
Much like Google’s top-secret algorithm, the specific ranking factors of the ASR cannot be confirmed. However, it’s suggested that in order to perform well, sellers must consider:
(*very subtle side note: as an agency who offer Search Engine Optimisation [typically used to optimise for Google], Alpha Digital are well-equipped to bring products to prominence and success through Amazon’s search functionality…)
In the US (and other established markets), Amazon has a seemingly endless range of products and offerings (their logo even depicts an arrow from ‘A’ to ‘Z’ to highlight this). Based on Amazon’s previous rollouts in other countries, however, it’s likely that Australia will be get the full Amazon range until the end of 2018. Rather, it’s expected that they will start within the “safe” spaces within eCommerce, electronics, and non-perishable foodstuffs before emulating the US’ full retail offering.
Amazon’s recent purchase of Whole Foods $US13.7b ($AU18b) has also led to speculation that Amazon will take a similar approach in Australia, potentially buying up a smaller grocery chain (such as Foodworks or Friendly Grocer) and using it as a distribution point for their AmazonFresh grocery delivery service. This could fundamentally change the way that Coles and Woolworths operate, and lead to even more competitive prices on everyday items.
While the Australian Amazon offering is set to be a huge shake-up in the retail industry, it’s important to remember that businesses both large and small can take steps to “Amazon-proof” themselves against falling sales numbers. By either adapting to new consumer expectations (such as the new same-day shipping offering by JB Hi-Fi) or joining forces with the innovative retail beast to sell their products, Australian businesses will still be able to thrive for years to come.
For assistance on “Amazon-proofing” your business or taking a successful step into the Amazon Marketplace, get in touch.