Amazon has arrived in Australia and already has nervous retailers reaching for the anxiety pills.
However, a new study by researcher Roy Morgan has revealed which retailers are most at threat when the online shopping behemoth finally gets up and running.
According to the study, Amazon does well in countries that already have a rich history of online shopping – and that would be Australia.
It also does well against retailers whose existing shoppers shop in-store and online.
Coincidentally, only about four per cent of Australians do their grocery shopping online, which could explain why Amazon has no plans to launch its Amazon Fresh or Amazon Prime offerings in Australia just yet. And is certainly good news for the likes of Coles and Woolies.
According to Roy Morgan, Australians will most likely buy electronics or appliances from Amazon, which is bad news for the likes of JB H-Fi or The Good Guys.
The study also found that 30 per cent of David Jones’ customers had visited Amazon’s website. The list below shows the percentage of Australian retail customers that also shop online at Amazon.
David Jones 30 per cent
Zara 28.2 per cent
Dymocks 27.2 per cent
Officeworks 25.2 per cent
Toys R Us 24.5 per cent
Ikea 24.5 per cent
Spotlight 24.4 per cent
JB Hi-Fi 23.9 per cent
The Good Guys 23.2 per cent
Myer 22.4 per cent
Priceline 21.7 per cent
Cotton On 21.5 per cent
Harvey Norman 21.5 per cent
Target 21.2 per cent
Bunnings 20.7 per cent
According to Roy Morgan: “Both JB Hi-Fi and Harvey Norman have publicly predicted that they will be able to compete with Amazon on price, but given their high-margin business model this looks like being an unrealistic stretch.
“The inconvenient truth is that Amazon does not rely on gross profit margin for success. Its success is driven by volume – and it has that in spades. That’s what led founder Jeff Bezos to famously declare, ‘Your margin is my opportunity.’
“Last year Amazon’s gross profit margin – in basic terms, the mark-up on products they sell – was a miniscule 6.8 per cent. And still JB Hi-Fi with a gross margin of 21.9 per cent and Harvey Norman with 31.4 per cent believe they can compete on price.”
The study added: “Australian retailers also have high operating costs. Woolworths and Coles, for example, spend more than 24 per cent of sales revenue on leases, wages, marketing, etc. Operating costs for department stores are much higher, typically reaching 40 per cent. JB Hi-Fi is the exception in the Australian retail scene with costs at a low 16.3 per cent of sales revenue.”
However, Roy Morgan does conclude that Aussie retailers that play on the human side of their business will better compete with Amazon. For example, grocery stores that play on their locality in the neighbourhood. Those who try and take Amazon on in price are the ones that are doomed.
The study concluded: “The local, very human connection with supermarkets and their low levels of online shopping largely quarantines incumbent supermarket brands from Amazon.
“This also signposts a solution to other retail sectors – do not try to compete on price. You cannot win. Instead, compete on everything that has a human and local connection. Amazon cannot compete with that.
“Let’s turn our backs on artificial intelligence (AI). That’s Amazon’s universe. Instead, let’s focus on human intelligence (HI). Make that the universe you own,” it noted.