Amazon’s Australian Arrival: Calamitous News For Retailers, Great News For Agencies

Amazon’s Australian Arrival: Calamitous News For Retailers, Great News For Agencies

Amazon’s arrival has painted a bleak picture for Aussie retailers, particularly those who play right in the online retailer’s space of electronics, fashion and cheap stuff (typically Kmart and Target’s turf).

However, a new report says the retail behemoth’s arrival Down Under – rumoured to be in late 2017 – should be a boon for agencies as Amazon spends to announce its arrival and retailers up their spend to compete.

The report, by Dentsu Aegis Network and titled Ad Spend Forecasts – June 2017, has predicted ad spend in Australia will increase by 4.1 per cent this year to reach $15.4 billion. The agency had forecast Australia’s ad spend to be 4.5 per cent this year, however, it’s still better than the global forecast of 3.8 per cent.

Much of the increase will be due to the retailers shoring-up customers before Amazon’s arrival. The Dentsu Aegis report predicted that Amazon would spend $10 million in advertising to announce its Australian debut.

According to the study, the biggest ad spenders of 2017 thus far have been retail – supermarkets, department stores and hardware – and the automotive sector. While the government (we need an election!), finance, FMCG and travel all spent less in the first six months of the year.

However, how much the likes of Harvey Norman, JB Hi-Fi and Big W can spend to protect against the pending Amazon onslaught is unclear.

The Amazon effect 

Conditions are set to improve in 2018 with forecast growth in ad spend. The entry into the Australian market of Amazon late 2017 is likely to fuel additional advertising activity across several sectors including retail, entertainment and food. The “Amazon effect” will continue into 2018 when an overall advertising spend growth of 4.8 per cent is forecast.

Growth in 2018 will also be boosted by key events including the Ashes cricket, Winter Olympics, along with State Elections in South Australia, Victoria, Queensland and Tasmania with a window of opportunity for a Federal election in August 2018 – May 2019 to contribute additional funds to advertising.

A report, released in late May by Morgan Stanley and titled The Amazon effect in Australia reveals as much as $800 million could be stripped from the profits of mainstream stores once Amazon establishes itself in Australia.

The report noted that Amazon, whose model is online and super-fast delivery, will generate $12 billion of sales by 2026 with five distribution centres established across Sydney, Melbourne and Brisbane.

It found investors should retail avoid stocks and as added to ASX-100 listed retailers’ woes who are suffering their worst year since 2008.

The report was particularly onerous for the likes of Kmart who, it noted, had an average customer spend of just $10. Another of Amazon’s specialities is clothing, which is bad news for the likes of Myer and David Jones.

Commenting on the latest ad spend forecasts Simon Ryan, CEO of Dentsu Aegis Network ANZ, said: “As ad spend in digital overtakes television, mobile overtakes desktop, and paid search overtakes print, it’s evident that we’re approaching a tipping point in both the industry and the consumer landscape.

“The challenge for brands is to best position themselves for growth by shifting the focus from audience-based to consumer-based marketing. Using data to better inform strategies, increase addressability and add value through innovation is key to this and will ensure brands remain relevant.

“Digital and data must now be the default settings for advertisers and evolving to people-based marketing using data to increase addressability. This will be essential for brands to manage future business conditions in 2017 while positioning themselves for future growth.

“At the same time, the challenge for brands is to ensure that they are ready to embrace the potential of the new economy and protecting brand which entails a mix of all media. Mitigating the cost of complexity and working with the right communications partners is crucial to ensure that brands remain relevant by creating new value for their consumers.”

Mobile and digital become the new default settings  

Forecasts also indicate how digital technology continues to disrupt and drive innovation in the way brands connect with their consumers. In Australia, digital is forecast to grow by 12 per cent in 2017 and 11.3 per cent in 2018. Already the number one media since 2014, it is forecast in 2017 to reach more than 50 per cent share of total advertising spend for the first time.

Traditional media channels are expected to see continued revenue declines in 2017 and 2018. TV spend is forecast to decline by 2.6 per cent in 2017 and 2.4 per cent in 2018. Furthermore, reflecting the continued disruption by digital technology of the print media industry, newspaper ad spend is forecast to decline by 11.9 per cent in 2017 and 8.9 per cent in 2018. In 2017 and 2018, magazine ad spend is predicted to fall by 18.7 per cent and 10.7 per cent, respectively.

Figure 1: Growth in advertising expenditure 2016-2018 (selected economies)

Year-on-year % growth at current prices
2016a 2017f 2018f
GLOBAL 4.8 (4.4) 3.8 (4.0) 4.3
NORTH AMERICA 5.0 (5.0) 3.6 (3.8) 4.0
USA 5.0 (5.0) 3.6 (3.8) 4.0
CANADA 3.1 (3.0) 3.1 (3.0) 2.7
W.EUROPE 4.0 (2.9) 3.5 (2.7) 3.6
UK 6.1 (5.4) 4.0 (4.6) 5.9
GERMANY 2.3 (2.3) 2.6 (2.1) 3.0
FRANCE 0.9 (0.9) 1.6 (1.2) 2.0
ITALY 3.5 (1.3) 0.8 (0.8) 1.5
SPAIN 6.8 (5.0) 5.0 (4.4) 3.6
C&EE 7.6 (4.7) 6.6 (5.5) 6.0
RUSSIA 11.4 (6.2) 9.8 (5.2) 7.8
ASIA-PACIFIC 4.7 (3.9) 4.3 (4.2) 4.6
AUSTRALIA 4.8 (5.4) 4.1 (4.5) 4.8
CHINA 7.4 (5.7) 6.0 (5.5) 5.4
INDIA 11.9 (12.0) 13.0 (13.9) 12.2
JAPAN 1.9 (1.8) 1.7 (1.2) 1.7
LATIN AMERICA 11.9 (10.0) 7.0 (9.8) 8.9
BRAZIL 5.4 (4.8) 2.1 (4.5) 5.0
  Figures in brackets show our previous forecasts from September 2016



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