Aug 29 2017
Amazon’s imminent arrival into the Australian market is set to shake up the retail sector. The company has indicated its plans to challenge domestic retail prices, with Australia’s relatively stable economy and high disposable incomes appealing to the fast-growing online retailer. Amazon has announced plans to open its first major Australian warehouse, spanning 24,000 square metres, in Dandenong South, Melbourne. The centre is likely to stock hundreds of thousands of products, which will be available for delivery to customers once Amazon launches its Australian online retail store.
However, to be successful in Australia, Amazon’s current business model will need to be adapted to the Australian market. For example, Australia’s large geographical size and widely dispersed population will lead to higher distribution costs compared with Amazon’s home market in the United States.
Amazon plans to focus on providing consumers with low prices, a diverse product range and fast delivery. The company also intends to set prices at a 30% discount compared with domestic retailers, appealing to price-conscious Australian consumers. This strategy is likely to affect local retailers that have found it difficult to adjust to a shift in consumer spending behaviour over the past five years. Bargain hunting has become increasingly prevalent, with many consumers refusing to pay full price for items.
Department stores and electronic goods retailers are expected to be the hardest hit by Amazon’s arrival. Department stores have already been struggling to attract consumer demand, with revenue declining by 0.9% annualised over the past five years. Technology products are expected to be the highest selling category for Amazon, disrupting the electronic goods industry. Australian consumers are particularly price-savvy when it comes to electronic goods, often comparing prices across multiple retailers to find the best value. Amazon is expected to take market share from local electronic goods retailers such as JB Hi-Fi and Harvey Norman.
However, there are still likely to be some opportunities for existing Australian retailers following the arrival of Amazon. The online retailing giant is expected to help drive strategies for change aimed at digital transformation, logistics optimisation and multichannel platforms. Amazon may also help to provide online retailers with another platform to sell their goods. This trend is forecast to drive further growth in the online shopping industry over the next five years. The online shopping industry has increased rapidly over the past five years, expanding by an annualised 13.5%. This strong growth is expected to continue over the next five years, with the arrival of Amazon boosting the share of retail sales made online.