With the imminent arrival of eCommerce giant Amazon to Australia, we take a look at the current state of play and consider how the launch could shift the online retail landscape here.
The current state of eCommerce
For the second year running, Australia Post and its logistics arm Star Track recently released the Inside Australian Online Shopping report, an extensive analysis of 4 billion-plus deliveries to 11.5 million addresses in 2016.
The survey reveals a 10.2% year-on-year uptick in online shopping, a total consumer spend of $17.7 billion. On the face of it, that sounds like a lot, but Australians still spend a massive $261 billion in traditional retail stores. So online shopping equates to less than 7% of bricks and mortar spend. In the UK and US, that proportion is more like 15%, so it appears that we’re still a little slow on the eCommerce uptake. Significantly, however, that 10.2% growth is more than three times that of old-school retail (3.3%). The lesson for marketers is that opportunities abound—the Australian market has significant room for growth as we play catch up.
The report also reveals that Australians spend most in the department and variety store category (30.1% share of online spend) followed by fashion (22.2% share), and homewares and appliances (14.8% share). The sector experiencing the greatest year-on-year growth is media (up 22.9%). Eighty per cent of sales in this category are books, but it also includes music, software and magazines. Of the top seven categories in the survey, only specialty food and liquor was stagnant. At least it didn’t go backwards.
The Amazon factor
A major difference in Australia compared to other international markets is the absence—so far—of Amazon. The eCommerce behemoth dominates in America and has had a major impact on the retail landscape in other countries. Australia is next in Amazon’s sights: exact details are still sketchy after a year of rumour and speculation, but the company itself confirmed the launch is ‘really, really soon’ at a seller summit in Sydney this month. Many pundits anticipate it to coincide with the mega Black Friday sales (Novemeber 24).
In the US, Amazon held a stranglehold on over 40% of online sales in the first quarter of 2017. The next biggest online retailer nabbed less than 3% of the market. MarketingLand.com posits that Amazon’s runaway success comes from “defining the way we think about convenience”. By providing an unmatched product selection at competitive prices with innovative and speedy delivery (offering same-day services and the much ballyhooed drone deliveries), Amazon has worked hard to remove barriers to online shopping and is reaping the rewards.
Normally, an established category or brand with major market share will exhibit modest growth compared to a category starting from a smaller base (as demonstrated by Australia’s traditional vs online retail figures, above). Significantly, Amazon isn’t abiding by this ‘rule’, growing at 30% year-on-year in America, faster than the overall eCommerce sector.
Amazon’s impact in Australia
Just how Amazon will shape the local retail market remains to be seen, but indications are that the rollout will be aggressive. Senior executives flew into Australia ahead of the launch during Melbourne Cup week, knowing key rival Myer would be kind of preoccupied. The Australian Financial Review reports that Amazon’s strategy here will be more in line with its entry into Spain than the approach it took in Canada. In Canada, where online has an even lower share of retail than Australia (3.6%), Amazon gradually added major categories and its Prime service (a subscription offering free one or two-day delivery timelines) over a period of 13 years. Amazon Spain featured major categories at launch with Prime following within a matter of months. After five years, Amazon employed over 1000 people and offered 175 million products to Spanish customers.
We know already that Amazon will launch here with both its own retail offering and Marketplace, a platform for third-party sellers to offer new and used goods. For customers, the impact is likely to be positive, with local retailers expected to drop prices to remain competitive. For retailers, predictions are mixed. Some observers see Amazon’s arrival as a good thing, opening up sellers to a wider audience and an additional revenue stream. Others, however, believe big consumer retailers such as Myer, Harvey Norman, JB Hi-Fi and EB Games are in the firing line, set to feel the pressure.
Amazon’s big USP overseas is a three-hour delivery service (or two hours with its Prime Now subscription), something that will be difficult to replicate here given Australia’s vast geography and sparse population. Even the most efficient drone couldn’t service our rural areas in such a timeframe. Expect it to be a metro-only offering—we know an Amazon distribution centre has been set up in Melbourne’s east, so the question remains whether three-hour delivery can be offered in other cities initially. The Iconic already offers three-hour delivery but only in Sydney where its warehouse is located.
Australia Post will also feel the heat, but has the advantage of a well established delivery network with the ability to service even the most remote regions. AusPost has already swung into action, launching Shipster, a subscription service to counter Prime, offering free delivery with over 50 major retailers including, and not by coincidence, the likes of Myer and Harvey Norman.
It’s not as though Australian consumers aren’t familiar with Amazon, Morgan Stanley estimates that they already do around $1 billion worth of business here. But with a local team and distribution presence they’ll be after a much bigger cut of that $261 billion retail spend.
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