How Amazon’s Australian Arrival Could Seriously F@ck Agencies Too

How Amazon’s Australian Arrival Could Seriously F@ck Agencies Too

Retail behemoth Amazon’s pending arrival in the Australian market has widely been seen as a serious wake-up call for local retailers, however a new report suggests it has the potential to have a number of adverse flow-on effects for ad agencies too.

Amazon, of course, sells millions of items online, all delivered to a customer’s door at prices most retailers can’t match. It has a particular focus on electronics, entertainment, clothes and fresh food.

In March 2016, Target Australia boss Richard Goyder famously said Amazon would do to Aussie retailers what it had done to their US counterparts – “Eat all our breakfasts, lunches and dinners” unless local retailers become more innovative and barriers to competition were removed.

Last week, Amazon finally unveiled its tentative plans for the Aussie market which included the establishment of distribution centres and the launch of services here such as Amazon MarketPlace, Amazon Prime Now and eventually Amazon Pantry and Amazon Fresh.

However, a new report by wealth management firm Morgan Stanley has found that Amazon’s arrival in Australia will severely dent traditional retailers’ revenues which will have a flow-on affect to advertising budgets too.

The report, authored by Morgan Stanley equity analyst Andrew McLeod, found that retail in Australia represented as much as 30 per cent of all ad dollars (some $4.2 billion) spent in 2016. Namely by the likes of David Jones, Myer, Woolworths, Coles, ALDI, JB Hi-Fi and Harvey Norman.

“In simple terms, retail is the largest advertiser group in Australia – we estimate it accounted for 20 to 30 per cent of total ad spend in 2016,” McLeod noted in his research. “If your largest customer faces pain and uncertainty… so invariably will you.”

And with Facebook and Google already soaking up vast swags of ad spends, Amazon’s arrival could be yet another blow adland could well do without.

McLeod said Amazon’s arrival could force retail advertisers to divert ad spends away from TV, radio and print towards online, especially in terms of search. Amazon in the US has avoided traditional media for its ad spends, preferring the online medium.

“We estimate retailers in aggregate currently spend 40 per cent to 50 per cent of their advertising budgets on TV alone, which collectively amounts to expenditure of between $1 billion and $2.1 billion annually. As a group we estimate retailers are the largest customers of TV,” McLeod noted.

The study estimated if Amazon took just 5 per cent of retail sales in Australia, TV could lose between $62 million and $103 million in ad spend. If it took 10 per cent, TV ad spend could drop between $123 million and $205 million.

“To balance the discussion, we acknowledge this bearish analysis is simplistic. In that, if retailers’ demand for TV ad time falls over time, as expected … we would not expect all the TV screens in Australia to just turn blank.

“Rather the TV networks would look to replace with more ads from other categories, and/or finding new advertisers. But, the fact remains, if demand from retailers falls, it will be negative for the TV networks. Any replacement ads will likely be at lower ad rates and prices,” McLeod said.

Please login with linkedin to comment

(Red) Advertising Standards Bureau Digitial I Quit Sugar Sorry The Digital Content Guide

Latest News