The Australian Financial Review Retail Summit and various commentators from the industry have all pronounced that yes Amazon will have a profound impact on the industry however quite a few commentators have played down the impact in the short-term. Comments such as “Canada is an example of a country where Amazon hasn’t had a large impact”, “it will be 5 – 7 years till Amazon has a major impact here”, “Amazon will not be able to deliver the logistics” and “we have researched our category and overseas the impact of Amazon has been small” are all examples of optimist thinking.
Here are 5 reasons to ignore these optimists and start preparing NOW.
Reason 1: What if you are wrong? Hope for the best plan for the worst.
Reason 2: US$115.267 Billion. This is the value of Total Assets at Amazon at 30th September 2017. Amazon have the resources, talent and Jeff Bezos to scale as quickly as they want and a reputation of driving market share. If there is one company that will be able to solve the logistic issues of Australia it is the retailer with the largest online market share and the deepest pockets. Last year Amazon spent $16 billion on research and development placing at or near number 1 globally on R&D spend.
“This isn’t David versus Goliath, it is David versus King Kong”
Reason 3: Amazon Prime. This is a game changer. Free delivery within 2 days, Free Amazon Streaming Service, Free Amazon Music with 2 million songs, Free access to books and magazines, Free unlimited photo storage and so on. Overnight the standard for delivery in Australia will go from 3-7 days and $10 to 2 days and free. We estimate that Amazon Prime will be around Aus$14.99 per month. With Australia’s propensity to adapt to new technology and service innovation such as Netflix, Carsales.com.au, Realestate.com.au, Spotify, we believe the take up will be faster and penetrate deeper.
Reason 4: Time it takes to catch up. It will take retailers in Australia about 18 months to gear up to compete with Amazon. For bricks and mortar retailers to compete successfully against Amazon you will need to transform your business in the following ways
Have innovative & differentiated product
A competitive website and multi-channel strategy versus Amazon with back-end ERP system able to deliver to customer expectations
Be able to cut substantial costs out of your business to reinvest in people and systems
Have retail staff that engage with customers and can deliver a consistent and above average customer experience across all channels
A retail strategy that details out how to compete with Amazon and the Three Amigos – Zara, H&M and Uniqlo.
More than 70% of Australian Retailers have not prepared adequately to compete in our opinion.
Reason 5: The numbers don’t lie. Australian bricks and mortar will sustain substantial negative growth in revenue, price and margin over the next several years which will be replaced by Amazon, Alibaba, The Iconic, Zara, H&M and Uniqlo and all. It is estimated that 6.7% of total retail sales in Australia are from ecommerce (NAB), in the USA it is 11.7% and China 19.6% of total retail sales (emarketer). These percentages are the trajectory we are heading towards.
It doesn’t help that a lot of commentators are playing down the impact of Amazon on our retailers as we are conservative in nature and slow to change. Our track record of anticipating change be it the ecommerce explosion, globalisation and now the Amazon effect is poor.
For any retailer who wants to know where they stand in readiness to compete against Amazon email me and I will send you my feedback.
“The truth may hurt and it will set you free” William (Bill) Rooney.