Amazon to Decimate the Aussie Market? No Chance…

Have you heard?, Inc. [NASDAQ:AMZN] is coming to Australia.

The arrival of Amazon in Australia has been BIG news for the better part of 18 months.

Every little sniff of an Amazon executive looking at a warehouse has been reported, analysed and discussed as a potential location from which Amazon will plot its takeover of Aussie retail.

‘Aussie retail is dead!’ has been the media catchcry.

Jeff Bezos, the CEO of Amazon, must be thrilled with all the free support from the local media. Amazon might even be able to cross off advertising from its Aussie budget!

Which is good because Amazon has Australia’s fairly high minimum wage standards to meet when it sets up shop. Amazon reportedly pays £7.65 (AU$13.72) an hour to warehouse staff in the UK, and US$12.84 (AU$16.77) per hour for similar positions in the US. Both rates are well below the average $21.42 warehouse staff in Australia expect.

Wages aside, that hasn’t stopped the threatening headlines about Amazon entering and crushing local retailers. Over the weekend, The Age ran a headline: ‘Amazon kicks off assault on Aussie retailers with “unheard of” fashion attack’.

How is this daring attack playing out? An unprecedented number of fashion shoots are taking place over the next few weeks in secret locations. The Age notes:

BusinessDay has been told that Amazon deliberately chose Melbourne Cup week, when key rival Myer is partying at the races, to begin its foray into the local market.

Amazon is scheduled to undertake three fashion shoots per day, five days per week, at secret locations across Melbourne over the next month.

That team includes Amazon’s India-based production shoot manager Anisha Bhardwaj, who put out a request on LinkedIn for “E-commerce Product and On-body Photographers, Stylists and make up artists based out of Melbourne” three weeks ago.

“I have never seen anything like this in Australia,” said a member of Amazon’s Australian operations.

“I have seen major shoots for the big department stores, but nothing to this scale. Three shoots per day is unheard of, let alone every day of the week.”

Initially the rumour was that Amazon would have local warehouses up and running in time for the Christmas rush. While Amazon hasn’t confirmed anything, Citi analysts Bryan Raymond and Craig Woolford expect Amazon to launch by 24 November, in time for ‘Black Friday’.

Black Friday is an American tradition. The day involves retailers opening earlier than normal — the day after Thanksgiving holiday in the US — with heavily-discounted stock.

But there’s a problem with Amazon launching in Australia at that time. 

Only in America

Black Friday is an American tradition, not an Australian one. Five years ago, Aussie retailers started copying this idea. However, the main companies participating were Harvey Norman Holdings Ltd [ASX:HVN] and JB Hi-Fi Ltd [ASX:JBH].

In spite of this, special ‘cyber sale’ days in Australia have generally fallen flat.

Furthermore, if Amazon has a month full of photo shoots planned, it’s unlikely that the local offering for apparel and footwear will be ready in time. In any case, I’m not convinced Amazon’s big assault on the Aussie market will come from an apparel line-up.

Still, there’s one final hole in the idea that Amazon will ‘smash’ local apparel offerings in Australia. And that’s our online culture.

In my view, the biggest reason behind Amazon’s incredible 43% share of online sales in the US — and 5% of total retail sales in the US — isn’t just because the tech giant worked how to centralise product sales at a cheaper price.

Prior to Amazon introducing itself to the American public in 1994, consumers were already used to purchasing goods by distance. In fact, in 1993, 55% of all Americans bought something from a catalogue.

Granted, Amazon and the internet have played their part, with 79% of Americans now shopping online. That compares with one in 10 Aussies who splash the cash on the web.

The point is, Amazon had the foresight to transform a captive audience. The catalogue culture was firmly in place. Buying items based on pictures and descriptions and having them shipped to you was already a decades-old established shopping habit in the US. It was ripe for disruption.

Here in Australia, though, it’s a little different. I won’t dispute the fact that many of our large retailers have a woeful online presence and process. But Amazon isn’t piggybacking a captive audience. The tech behemoth will need to roll up its sleeves and get its hands dirty to win over Aussie shoppers.

And that won’t happen overnight. What it will do is allow local competitors the chance to catch up.

Kind regards,

Shae Russell,
Editor, Markets & Money

Shae Russell started out in financial markets more than a decade ago. Working with a derivative brokering firm, she helped clients understand derivative markets, as well as teaching them the basics of technical analysis. Since joining Port Phillip Publishing eight years ago, Shae has worked across a number of publications. She holds the record for the highest-returning stock recommendation, in which a microcap stock returned over 1,200% in six months. Ask her about it, and she won’t stop yapping on. For the past two years, Shae has worked alongside Jim Rickards as his Australian analyst, translating global macro trends for Aussie investors, and how they can take advantage of these trends. Drawing on her extensive experience, Shae is the lead editor of Markets & Money. Each day, Shae looks at broad macro trends developing around the world, combining them with her distaste for central banks and irrational love of all things bullion.

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