US giant launching a retail offering in Australia
Amazon has lately capped many rumors of the behemoth coming to the shores of Australia by formally announcing that the company will be launching retail services within Australia soon. The move is speculated to send a shock through Australian retailers and is likely to trigger a carnival for consumers looking for lower prices and more options. Some expect a retail revolution to follow as the consumer discretionary sector is already among the worst performing sectors and that will possibly upset many Australian retailers (including JB Hi-Fi Ltd, Myer Holdings Ltd, Woolworths Ltd, Wesfarmers Ltd, Metcash Ltd) in the same way as Amazon had shaken the US market. Amazon entry led to wind-up of traditional business models and in turn closure of departmental and local chain stores. Amazon has long been associated to the Australian market after a successful expansion through other markets and is planning to set up a massive warehouse and logistics center that will be its base to shipping everything from local warehouse.
Recently announced Amazon Go to transform the market dynamics
Amazon has launched a real-world shop that allows customers to walk in, take what they want and walk out - No checkouts and no queues. Its checkout-free shopping experience is made possible by the same types of technologies used in self-driving cars, computer vision and sensor fusion. Its technology automatically detects when products are taken from or returned to the shelves and kept a track while in a virtual cart. When customer is done with the shopping and is about to leave the store, the charging happens real-time through an Amazon account of the customer. This new model of shopping not only challenges established retailers, but it raises fundamental questions about the future of work and the changing nature of the business generally. Amazon is currently gearing up to launch a number of its services in Australia, including Amazon Fresh, its grocery delivery service. These are likely to shake up the various cartels (including the Coles, Woolworths, David Jones, Myer) that dominate certain retail sectors in Australia, but it is the Amazon Go that is likely to be the real disruptor.
Recent Industry research highlighted that Amazon is enjoying an average year-over-year growth (YoY) rate of 38% compared to the total retail market’s combined growth average of 6% in the U.S. The retail market’s limited growth correlates with an increase in store closures at record speed due to Amazon’s success. The research has suggested that as many as 8,640 stores could close this year, substantially more than the 2008 peak of around 6,200.In the last few months alone, traditional retail businesses announced many store closures including JC Penney (138 stores), Macy’s (68), Sears/Kmart (150) American Apparel (110) and Abercrombie & Fitch (60).
Amazon’s technology is playing a vital role
Through its technology/algorithms, Amazon is dramatically reshaping online commerce like when entered the market with a spurt more than 20 years ago. Amazon's technology/software play an increasingly key role in broad swaths of business and shaping the marketplace. The effects of algorithms/technology is a vast advantage for the company with more than 300 million active customers and $100 billion in annual revenue. Further, Amazon offers options such as a chance to comparison shop, with a listing that ranks all vendors of the same item by "price + shipping." Another key aspect is the customer-centric approach as most Amazon shoppers tend to click "add to cart" while shopping. Yet another opportunity is that the company encourages shoppers to join the prime program, which offers free shipping on many items.
Oz Retailers to gear-up on digital transformation
Amazon entry is speculated to impact local retailers’ top line and some portion of earnings over the next few years, but the extent is yet to be predicted. The direct interpretation is that local retailers might lose their slice of market space pie. In the last three months, JB Hi-Fi’s stock price has dwindled by 15% while Harvey Norman stock price has been down more than 13%, at the back of speculation on Amazon entry. Post the official announcement, straight from the horse’s mouth, the shares of Harvey Norman and Myer Holdings fell by 3% while JB Hi-Fi was down over 1%. The flip side already been discussed above also calls in for something positive that might be sewing-in. It is still noteworthy that given the vast geography that Australia offers with a less dense population, Amazon might have to struggle with regards to setting a profitable distribution network. The operating parameters, staff wages and costs, might all just be at a different scale as seen in the US. Let us also not forget that some Oz retailers, though under pressurized situations in the anticipation of Amazon’s arrival, have already been on the streamlining-spree with efforts on setting-up online stores and cost reduction, and might be able to survive the challenging environment. Late last year, JB Hi-Fi’s chief Richard Murray has warned people against the Amazon’s hype and has been positive that company’s store footprint would impact Amazon’s arrival. Overall, the increased competition will set the path to transformational changes and is expected to break and make some. The ones who can bring in internal transformation (particularly with digital platform) might still be great survivors in the retail game.
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