Amazon Is Coming & Retailers Had Better “Be Ready” Warns Officeworks Boss
Amazon is coming to OZ and retailers had better be ready.
At a Retail Leaders forum in Sydney yesterday, Wesfarmers group managing director Richard Goyder said that the US Amazon giant will “eat all our breakfasts, lunches and dinners”, unless Australian retailers become more innovative and barriers to competition are removed.
Wesfarmers owns both Coles, Officeworks, Target, Bunnings + K Mart.
At CES 2016 a Best Buy executive told ChannelNews that the Company had to “learn quickly” how to deal with Amazon when they started stripping market share away from the consumer electronics retailer.
Greg Revelle the chief marketing officer for Best Buy said that the retailer had to make sure that they delivered a better instore experience while competing head on online.
A former senior executive at Radio Shack said that it was the impact of Amazon that killed off Radio Shack.
Mr Goyder said that Amazon are currently are gearing up for a major push into Australia and that retailers had better be ready.
Goyder says his biggest fear was not the competitive threat from Australian retailers but overseas online retailers such as Amazon.
He said that online retailers such as Amazon, Google and asos.com could trade 24 hours a day, seven days a week and 365 days a year, while Australian bricks and mortar retailers, including Wesfarmers’ Bunnings, Kmart, Target, Coles and Officeworks chains, were restricted by archaic trading hours and excessive regulation.
When it was first founded in 1994, Amazon.com was operating out of founder Jeff Bezos’ garage and earning $20,000 per week in sales within two months. Twenty-three years later, Amazon has 175,100 full-time employees and earned nearly A$150 billion in revenue in 2015.
Known as ‘The Everything Store’, especially with Amazon Marketplace enabling sellers to offer new and used items alongside Amazon’s own products the launch of Amazon could have a major impact on Australian retailers who lack capability.
The US Company is already sourcing warehouses and several major Australian Companies are already using Amazon storage and cloud serices offerings.
Amazon began as an online book retailer, thanks to Bezos’ research that illustrated the worldwide demand for literature combined with the low price of books and the huge number of titles available in print. Gradually, Amazon expanded into selling CDs, DVDs, toys, electronics, and appliances.
After surviving the dot-com bubble bursting at the start of the 21st century, Amazon introduced Amazon Prime in 2005, a membership offering free two-day shipping on all eligible purchases for an annual flat-rate fee. Later Amazon Prime expanded to offering its members streaming media. In 2007, Amazon launched Amazon Kindle, an e-book reader, followed by a tablet computer called the Kindle Fire in 2011.
Amazon Prime, meanwhile, has also contributed dramatically to the company’s growth. In 2009, Amazon had 2 million Prime members, and in 2011, that grew to 5 million; in 2015, Prime membership is estimated to be around 40 million, and worldwide paid membership grew 53% last year. Even better for Amazon? Prime customers spend over double what non-Prime customers do- about $1,500 per year compared to about $625 per year.
One of Amazon’s most significant lasting impacts was their adoption of “free shipping” in the early 2000s, when they began their Super Saver Shipping program, offering free shipping for orders of over $25. During one promotion, Amazon began offering free shipping with the purchase of a second book, which lead to a huge jump in sales. Clearly, Amazon realized that consumer psychology favored labeling things as “free”; however, they might not have foreseen the effect free shipping would have on side industries such as shipping and logistics.
Some retailers doubt that Amazon will be able to offer free shipping in Australia due to the high cost of transport.
The Impact of Amazon.
A consumer realizes that he needs to replace his coffee maker.
He knows he has two choices: driving to a physical store and hoping that they have the model he wants, and loading it into his car and driving home, or searching online until he finds his preferred make and model at the lowest price available, and having it shipped directly to his home. Which one does he choose? These days, our hypothetical consumer is becoming much more likely to choose the latter option. Thanks to online shopping, foot traffic, retail space openings, and holiday sales in retail stores have all decreased significantly in the USA
When and if Amazon arrieves in Australia the impact on retailers could be “severe” especially with foot traffic through the door of retailers claims analysts.
For example, brick and mortar retail stores in the USA saw foot traffic cut by about 50% between 2010 and 2014, from more than 30 billion visitors during the holiday season to 17.6 billion visitors.
Similarly, new retail space openings have been extremely low compared to years past, down to 43.8 million square feet in 2013, compared to more than 300 million in 2000, 2005, 2006, and 2007.
Finally, online sales increased at more than double the rate of brick and mortar sales during the 2015 holidays; in fact, Shorr research saw a 35% increase in business with e-retailers during the 2014 peak holiday season.
These trends have led to significant drops in revenue for some companies, and in some cases, even bankruptcy, with large companies such as Radio Shack, Circuit City and K-B Toys experiencing total liquidation. And while the US economy has added around 2.4 million jobs since the Great Recession, the retail industry has experienced a net loss of 60,000 jobs since the recession.