Amazon commenced operations in 1994 as an online book seller and quickly rose to be the world’s largest internet retailer in terms of both revenue and market capitalisation. Amazon diversified under the concept of founder Jeff Bezos to be the ‘Everything Store’ (Stone 2013) and now sells across the whole range of retail inventory items, from apparel to software, and from furniture to foods.
Jeff Bezo’s philosophy that Amazon would become the ‘unstore’ Stone (2013) which meant Amazon would not be constricted to follow the normal rules of the retail industry. Bezo’s philosophy was to offer low prices always combined with great service to become every store or an ‘unstore’. Amazon also allow third party sellers, predominantly small business, to sell their goods on Amazon in an ‘ebay like’ experience. Amazon has expanded internationally rapidly in the last few years opening operations across 13 countries.
The Business Data
To make relevant business decisions upon the entry of Amazon to Australia we need to consider the data to rely upon. Data such as revenue online sales vs Amazon’s share, and examples of Amazon’s international expansion are some of the data to look at. Australian consumers already spend between $500 to $700 million dollars shopping on the American Amazon site and research indicates that now Amazon has launched in Australia this spending could expand to $3.5 to $4 billion in sales within the next five years, capturing around 14% of all online sales (Bogle, 2016).
This data suggests that the total ‘pie’ available is therefore expanding. Rather than take customers from each competitor, business can take advantage of the overall increased custom. In terms of market share though, research by UBS, an American investment firm, indicates that Amazon is only likely to take about 2% of total retail sales (Mitchell, 2017). Before its launch into the Australian market, Amazon already made about one third of its Australian sales from third party retailers who sell on the Amazon market place. In Australia eBay captures about 22% of all retail online sales (Bogle 2016) and therefore the market place platform could have an effect upon eBay within Australia with minimal impact upon Australian retailers considering that eBay currently operate here.
Australian shoppers have also embraced online shopping in the last decade with revenue increasing by 21% from 2013 until 2017 alone to now stand at $32.56 billion dollars (Specommerce, 2017). With a large number of consumers already shopping online traditional bricks and mortar retailers have been experiencing increased competition for years.
Amazon offers a wide range of products via amazon.com.au the website of Amazon selling across the whole range of merchandise, which also includes Amazon Marketplace the ‘ebay like’ platform that allows other retailers to use Amazon’s platform for a fixed fee in order to sell their goods. Amazon also launched Prime Video in 2016 to rival Netflix and Stan although the impact within Australia so far has been minimal.
Amazon music unlimited is a service that essentially competes with Apple music, and Amazons smart assistant to compete with Apples Siri, and Amazon Fresh – Amazon’s grocery and fresh food delivery service. The fresh food delivery service has seen remarkable success in the US and UK but has not been introduced in Australia and is probably some time away from being launched due to the logistics of delivery.
In terms of the impact upon Australia it would be beneficial to determine the impact that Amazon has had on its expansion into other countries in recent years – looking at historical facts can be an indicator of future events. Amazon launched into Canada in 2012, under very similar circumstance to its launch into Australia. Both Canada and Australia have similar demographics.
Amazon Canada is Canada’s largest e-commerce business according to analysists. BMO estimates the Seattle-based retailer and operator of Amazon.com and Amazon.ca generated just over $3.5 billion in Canadian e-commerce sales in 2016, up from an estimated $2 billion in 2014 (Shaw, 2017) However, according to research by AT Kearney, Amazon has had a slower rollout of categories of products (similar to Australia) which has affected its market penetration.
Amazon Canada has been losing market share and also lagging behind the general level of online participation to have only 10% penetration (down from 15% in 2002). AT Kearney opinions that domestic and foreign retailers have successfully strengthened their competitive advantages in response to Amazon (Kearney, 2017). For instance, Walmart Canada is strongly competing with Amazon particularly since Walmart has a large traditional shopfront presence. Kearney (2017) has found that the effect of Amazon on traditional Canadian retail business has not been as large as predicted; Amazon is not taking customers away from traditional big retailers, at least not to the extent that analysts had predicted.
BMO analysts report that expected discounts from Amazon have not eventuated and that Canadian retailers have not seen any ‘significant negative impact on their revenues’ (Sturgeon, 2015) due to Amazon. AT Kearney have also predicted that Amazon would at the most achieve a similar market penetration in Australia similar to Canada of around 10% of online retail and approximately 1% of total retail sales (Kearney, 2017).
From examining the data, Amazon’s entry into Australia, while of concern to existing retailers, should not be seen at the level of complete business destruction. Business would do well to prepare for increased competition by undertaking a SWOT analysis of the external environment – in effect looking at the opportunities and threats that Amazon bring to the market and formulating responses to them. The next section highlights those threats and opportunities and the responses to improve business practice and therefore business strategy.