Disruption is coming to the Australian retail market in the shape of Amazon – you might know it? In this opinion piece, Dentsu Mitchell’s national head of marketing and partnerships, Carla Bradshaw (pictured above), looks at the impact from a marketing perspective.
No doubt the launch of the ‘bricks and mortar’ Amazon will be a signification disruption for Australian retailers with an expected erosion of profit margins likely for many.
Time will quickly run out, with reports of their current recruiting of 100 roles in preparation of their planned invasion in September 2017, retailers and marketers need to plan now for what Amazon’s impact is likely to be.
Let’s recap on information released to date; the online giant sees grocery as an opportunity and is expected to launch its grocery business in Singapore and South East Asia at the same time as Australia.
It’s been reported Amazon will launch an Australian version of its online brand Amazon Prime Now first which provides members free shipping on a large range of products. Amazon Prime is a paid membership program, offering every day household items with free two-hour delivery.
Once established, the retail giant is expected to launch its Amazon Fresh product, an online grocery delivery service for an additional fee.
Amazon expects to generate the majority of its sales from online orders initially, followed by its stores, expected to generate similar revenue to an average Aldi store. Amazon is likely, initially, to focus on its more successful general merchandise categories; electronics and toys.
Amazon has indicated it will have distribution centres in each state as well as physical stores in regional areas to avoid high logistic costs. Stores will carry a mix of general merchandise and fresh produce.
Some facts on their current market position in the US. Amazon has $US1 of every $US2 of e-commerce sales and their market share is continuing to grow. E-commerce is set to reach 20 per cent of sales in the US in 10 years and by that time Amazon will account for 10 per cent of all US retail sales, according to data prepared by Watermark.
Also according to Watermark, prior to turning on its system in Australia, Amazon will price check everything before setting prices at a 30 per cent discount.
There’s no doubt Amazon’s presence in Australia will have a significant economic impact on the retail landscape, but online retailers should be mindful that online retail penetration as a proportion of total sales is only around seven to nine per cent locally.
If Amazon launches Fresh successfully it would have a significant impact on our supermarket retailers where margins are among the highest in the world.
Current economic indicators show Australia is ‘ripe for the picking’ for Amazon. We have household income growth currently slow, sluggish employment growth, lower disposable income, and the household debt to income ratio has soared to a record high over the past three years – Aussies have it tough right now and Amazon just might be the answer.
For our local retailers, there are a few immediate actions to cross check to make sure they can compete.
They need to ensure they are providing their customers with flexible, consumer centric delivery options. The two-hour delivery turnaround that Amazon will offer takes convenience to pretty much unprecedented levels for Australian customers and will set a new benchmark of expectation.
It’s more important than ever that it’s easy for customers to make their purchase, whether it’s in store or online. According to Shopify, 40 per cent of customers who start filling a shopping cart online complete their transaction. One-click buying will become the norm and make the checkout process less cumbersome – again, coming back to convenience for the customer.
Customers need to be incentivized to be brand loyal. This means tapping into the emotional connection and giving them a strong reason to come back time and again, beyond just convenience. Reward programs need to work across multiple channels and truly provide customers with ‘money-can’t-buy’ experiences that they won’t get elsewhere.
Amazon is coming, and its arrival will be one of the major game-changers for Australian retail next year. Retailers and their marketers need to be ready now to ensure they ride the wave of change, and don’t get wiped out.