Amazon’s entry into the Australian market stands to drive local retailers to focus on segment-specific knowledge, increasing investment in technology in a bid for market survival.
Since launching locally in late 2017, timed just before the busy Christmas period, Amazon’s arrival has already shaken up the sector with traditional retail models now falling under the spotlight.
Australian retail shares have fallen sharply since the tech behemoth confirmed plans for the country in April 2017, with shares of top department store operator Myer Holdings Ltd down 30 per cent since that time.
“Australian retailers need to invest in mobile apps that include various features from browsing and shopping to product and style advice,” GlobalData digital retail analyst, Andreas Olah, said.
According to Olah, retailers must realise that competing against Amazon for most standard goods on price is not viable and ensure that they provide their customers with a differentiated experience by investing in technology.
“By focusing on their customer service capabilities with segment-specific knowledge, and a strong brand image with Australian identity, these local retailers have the opportunity to build deeper connections with their customers,” Olah added.
“This is more than what a global generalist like Amazon could ever achieve, even if it opened physical stores.”
Amazon, which had long kept Australia on a low priority list while expanding into less developed and smaller countries, was initially put off by a combination of challenges in the country, such as the geographical distance to other key markets and vast territory combined with a relatively small population.
As a result, Olah said Australian customers had to pay “exorbitant delivery fees” since all orders had to be fulfilled from far-away distribution centres in the US and Asia.
“Sensing long-term opportunities due to a fast-growing retail market driven by a booming economy and fast population growth, Amazon finally launched its operations in Australia,” Olah added.
According to GlobalData findings, total retail sales in Australia are expected to grow by $60 billion between 2016 and 2021, with no signs of a decline.
Specifically, the online channel is outperforming bricks-and-mortar, and is expected to grow its share from the current seven per cent of all sales to ten per cent over the same period.
With the launch of local fulfilment centres in Australia, Olah said customers can now buy goods from Australia-based warehouses with reduced delivery time and costs.
“Despite the presence of various international retailers, the Australian market across various segments is still dominated by local retailers such as JB Hi-Fi, Woolworths and Coles,” Olah added.
“Amazon’s business model relies on efficient distribution in large volumes. There are also major opportunities to establish leadership through technology in Australia, which is hard to replicate by local as well as international competitors.”
With the initial setup of operations in Australia often “complex and unprofitable”, Olah said that in a bid to compete with local retailers, over time Amazon may look to open physical stores such as Amazon Go checkout-free grocery stores.
“The revolutionary and fully automated store concept is backed by sophisticated artificial intelligence (AI) with image recognition and machine learning (ML) capabilities,” Olah added.
“The first Amazon Go store has just been opened in the US, with plans to expand these stores to major cities globally.”