Will Australia be Amazonned?

Will Australia be Amazonned?
Published: 
July 2018

"The retail giant has had problems entering the Australian market – but don’t underestimate its impact," says Dr Rand Low.

As busy professionals living in New York City and parents of a new-born baby, my wife and I have a trick to help us stay sane – we shop on Amazon Prime.

From the comfort of our living room and with just a few clicks, we can fill our basket with everything we need to survive the week ahead – from food and nappies to toys, clothes and electronic goods.

In the US, Amazon Prime has over 100 million users, equivalent to around half of all households. Amazon has changed the whole shopping experience and retailers are struggling to compete. The question is, can it do the same in Australia – or will it go the way of Starbucks and be forced to make a humiliating retreat?

Certainly, it hasn’t had the strongest start. Customers have complained it has a limited selection and doesn’t always offer the best price. Amazon’s decision to stop Australian residents shopping on its US site in response to the introduction of GST has further restricted their choice. Now some are suggesting that the negative response to Prime Day could be a sign of worse to come.

Aussies are obviously no strangers to internet shopping, but until now, the value proposition has been more about bargain hunting or viewing products unavailable in-store. As deliveries typically take five to seven days, returns policies vary, and shoppers typically need to visit multiple sites, bricks-and-mortar retailers could easily defend their turf.

Often, it is easier to go to a shopping centre, where you can get everything that you need in one place. You can view products, try them on before you buy and take them home with you on the same day.

Amazon changes all that. By offering guaranteed two-day delivery, it removes the uncertainty around delivery times and as it offers a whole range of products in one place, there is no need to shop around and worry about the different return policies.

What will this mean for shoppers? Essentially there are two types – the window shopper who may buy something if there is enough to pique their interest, and the busy no-frills shopper who wants to purchase goods in the most cost and time-efficient manner.

Amazon appeals to both. The former can browse through a much wider directory of products without concern of overspending as they can easily send them back. The latter can buy everything the household needs and be sure it will arrive within two days. 

If Amazon can meet the challenge of guaranteed two-day deliveries across the major cities in a cost-effective manner, everyday shoppers will have a much wider choice and more time on their hands.

The entry of Amazon into Australia will change the retail landscape and bricks and mortar stores are likely to suffer. There are three strategies that Australian businesses can choose to implement to meet this challenge of change:

 

1. Create a unique in-store experience

Brick and mortar stores must rethink their value-add. Consider what type of services or experiences you are bundling with the product to justify the higher prices or the effort of going in-store. The idea is to create a positive in-store customer experience – whether or not that leads to a sale is secondary, as customers can always buy online. In many cases, customers may not like to have to carry shopping bags back home and choose to have the product shipped.

Stores will have to offer a joyful, unique and surprising experience. This may mean designing an in-store fit-out that makes it easy to change the displays or re-decorate, training service staff to understand the characteristics of a product in-depth to explain it to customers better, or providing free in-store entertainment.    

One example is the Lululemon athletica stores, which offer free yoga classes at some shops and DJs with dancing instructors.

 

2. Tell the story of your product

A product’s appeal in store will not always depend on how it solves a problem, but on the story behind it. Therefore, companies should try to tell the story of their product in a way that engages the customer. Essentially, these customers are buying your product to partake in its history.

For example, at the Nike store on Broadway in New York, the ground floor is dedicated to a historical exhibition of their shoes, with their latest sneakers mixed in. These stores have become interactive showrooms where exhibits link to the positive experience of the customer.  

 

3. Choose your ​online sales strategy

Traditional retailers should consider their own online strategy. For smaller businesses, should they sell on their own websites, on Amazon’s platform or both? Larger companies like Woolies and Coles may decide to go head-to-head with Amazon and enhance their own websites or partner with other internet companies to provide a product base and logistics.

What we do know is that whenever Amazon enters a country, it sends the stock prices of incumbent firms spiralling. Of course there will always be hiccups when any company enters a new market – but it would be a mistake for Australian companies to underestimate Amazon and how effective it is in changing consumer behaviour.

 

Dr Rand Low is a finance expert and Honorary Fellow of UQ Business School. A former engineer with a background in computer science, he now works on Wall Street for the world’s largest asset manager, BlackRock.