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Amazon Set To Smash House Brands 30% Less Strategy Set To Hurt

As tipped by ChannelNews Amazon has delayed their 2017 launch until September, just ahead of the peak buying period for consumer electronics.

Their entry into the Australian market is set to create mayhem for several retailers especially the likes of Big W, Target, Kmart and the likes of Kogan online with the big online store set to sell products up to 30% cheaper than the likes of Harvey Norman, The Good Guys and JB Hi Fi.

“They will deal directly with brands; they will cut out Co-Op rebate expenditure and they will cut prices. This is a big win for brands who have had to deal with the demands made by Australian retailers on suppliers”. said one analyst.

At the same time Amazon’s arrival is also set to hit big brands who sell via the Amazon platform as Amazon is replacing traditional branded products with their own branded products.

Justin Braitling, chief investment officer at Watermark Funds Management confirmed last week that Amazon is set to establish distribution centres and performance centres in every state next year.

The arrival of Amazon will be felt on several fronts, both at a retail level and at a content streaming level as Amazon roll out their Prime service which is tipped to launch late in November.

It will also be felt by retailers selling house brand products and this includes Aldi, Woolworths and Coles, they also set to compete in the food market however this element of their business is not doing as well in the USA as the big online retailer had hoped for.

In the UK and the USA Amazon is successfully taking market share from established brands in several product categories, analysis from market-research firm 1010data reveals

According to them Amazon is changing the dynamic for category brand leaders by putting itself in direct competition via its own private-label brands.

Amazon features private-label products for more than a dozen categories, including batteries and car speakers, they also have their own branded sound systems as well as a smartphone and tablet.3500

Using consumer spending data representing millions of consumers, the research firm analysed sales trends from September 2015 to August 2016 for two categories, portable sound systems and batteries.

According to 1010data, estimated online battery sales in the US were approximately $113 million this past year, and 94 percent of all batteries sold online are now sold through Amazon sites.

Among the top 10 battery brands, the private-label AmazonBasics brand accounts for about one-third of battery sales online, which is up 93 percent from the prior-year period.

The online speaker market, meanwhile, generated an estimated $1 billion in sales this past year.

The Amazon Echo is the most popular speaker sold online, said 1010data, which also noted that Amazon and its third-party sellers command 89 percent of total online speaker sales.

The Echo brand reportedly holds a 45 percent market share among the top 10 brands sold on the Internet based on dollars sold. Sales of the Echo have grown 67 percent year over year, said 1010data.img_3837

“No matter the market, the challenge for brands in an increasing number of categories is that Amazon is the top online channel,” said Jed Alpert, 1010data marketing senior VP. “And Amazon is leveraging its dominance to sell its own private-label brands which compete with traditional suppliers.”

The reasons for the e-tailers success vary, said Alpert.

The AmazonBasics batteries are extremely price competitive and exist in a market with very little brand loyalty, he noted, while the Echo speakers are “truly innovative products that are redefining the market.”

“The bottom line for brands,” he concluded, “is they can no longer view Amazon as solely a channel and need to acknowledge Amazon as a competitor.”

In the US, where it has been offering its Fresh service for more than eight years, the company accounts for less than 1% of grocery spending, according to analysts Conlumino.

Geographical expansion has been slow, with the service now available only in Seattle, San Francisco, Los Angeles, New York City, San Diego and Philadelphia. Expectations had been for it to be in 50 US cities by now. In Australia Amazon is tipped to only offer their food service in capital Cities.

“This does not look to be a massive disruptive competitor in the short term,” says Dave McCarthy, a well-regarded retail analyst at HSBC.

One industry insider says Amazon may have an advantage from not playing by the same rules as its traditional rivals in terms of profit expectations and tax payments, but it will face strong competitors in Australia. “Selling short-life fresh foods is very different to books and consumer electronics. It will burn a lot of money,” the insider says.

In Australia Amazon is set to put physical stores on the ground “which I don’t think anyone knows about”. said Braitling.

“These will mainly be in regional areas because fulfilment is a lot harder in regional areas than in the cities.

“We spoke to the guy rolling out Amazon’s business here in Australia and in his words: ‘We are going to destroy the retail environment in Australia’.” he told the Financial Review.

Braitling refused to reveal the name of the person at Amazon who briefed him but said that the launch in Australia had been put back from March to September.

“It has been deferred for six months – they were originally launching in the first quarter of next year,” Braitling said.

He said that Amazon is building a technology platform specifically for the Australian market which is designed to integrate with its international operations, according to the research undertaken by Watermark.

The Amazon platform will be under the online brands used elsewhere called Prime, Prime Now and Prime Fresh.

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