How Can Local Retailers Compete With Amazon Australia? Data Science Has The Answer

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One day, very soon - we don't know when, but very soon - Amazon Australia will launch in Australia.

Now with the online giant's fabled "speed, price and choice" tipped to do some serious harm to local retailers, it's science that has an answer to how Aussie businesses can even have a hope of competing.

Michele Levine, CEO of global research firm Roy Morgan says we need to consider both existing online behaviour and price risk when figuring out how to survive Amazon.

"Amazon succeeds most quickly in new markets where there is already a high level of online shopping," Levine explains. "The theory is simple, it's easier to churn someone from an incumbent to Amazon than it is to convince a consumer to start shopping online from a standing start."

According to Roy Morgan data, in the past 3 months 54 percent of Australians over the age of 14 bought a product online, and 25 per cent of Australians shopped online for electronics and appliances.

Levine says this puts Australia "right in the firing line" for Amazon, and provides a scientific explanation for their intention to enter the Australian market.

"The real retail minefield is shaped by consumers who are both retail customers and Amazon shoppers," Levine points out. "Looking at David Jones over just the past 4 weeks, our data reveals that 30 per cent of its customers also visited Amazon's site."

"That means that when Amazon sweeps into Australia in the next couple of months, 30 per cent of David Jones' customers will be directly in its line of fire."

Levine points out that both JB Hi-Fi and Harvey Norman have publicly predicted that they will be able to compete with Amazon on price, but says that 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," Levine explains. "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.'"

Amazon only had a gross profit margin mark-up of 6.8 per cent last year. JB Hi-Fi had 21.9 per cent. Harvey Norman had 31.4 per cent. And getting those margins lower in Australia is tough - the net profit margin (with all expenses deducted) for these retailers can be as low as two or three per cent.

Operating costs for Australian retailers are high. Woolworths and Coles spend over 24 per cent of sales revenue on leases, wages and marketing. For department stores this figure is up to 40 per cent.

And it's worth remembering - Walmart had the same confidence when Amazon launched in the US, priding itself on being the cheapest, and saying it could definitely compete. Today, Amazon is cheaper.

"Price war or no price war, Amazon will beat any Australian retailer on price," Levine says. "And the impact will spread way beyond the retail sector. The Reserve Bank of Australia, for example, needs Australian retail sales to lift before it will raise interest rates, and with the arrival of Amazon that's not likely anytime soon."

How To See What Products Amazon Australia Will Be Selling

Can't wait for Amazon's arrival in Australia and want to know what they're likely to be stocking right out of the gate? If you use this handy Google search trick, you can begin to find items that Amazon Australia has already listed online.

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But there has to be some good news, right? Surely?

"There is good news and it largely relates to a human connection and local proximity," Levine explains.

Levine points out that Amazon is anything but human - and definitely not local. That's the "in" here.

"Take Australian supermarket brands as an example. They are in every local neighbourhood and do not have high levels of online shopping. Roy Morgan data shows that 25.4 per cent of Australians say they would like to but their groceries online. However, only 3.7 per cent actually do."

Levine says the "local, very human connection with supermarkets and their low levels of online shopping largely quarantines incumbent supermarket brands from Amazon."

And that's the solution, according to Levine. Forget price. Focus on the human and local connection with customers.

"Let's turn our backs on artificial intelligence. That's Amazon’s universe. Instead, let's focus on human intelligence. Make that the universe you own."

WATCH MORE: Tech News


Comments

    My wife and I purchase our groceries online every week from Coles or Woolworths, sometimes we have them delivered but mostly we use 'click and collect' .
    We do this because we would rather spend 10 minutes buying the things we regularly buy in grocery.
    I've used the same 'click and collect' for JB-HIFI and DickSmiths when they had brick and mortar. It all comes down to convenience for me.
    I live on the Gold Coast and there are better things to do than go grocery shopping when the weather is awesome and I'd rather be at the beach.
    What the other retailers need to do is stop whining and take on board what has made Amazon successful. Delivery speed, customer satisfaction.
    PS I don't have an amazon account yet.

      I do the same but with different stores. Haven't done groceries yet but I am very tempted to.
      I buy a lot online from local sellers, $10 delivery next day or 45 minutes travel each way I'll pay for delivery. I don't shop overseas too much, usually for niche items I cannot purchase in Aus everything else is local retailers.

      Last edited 29/11/17 7:41 pm

    Amazon could be a blessing for businesses. ie. If you own a retail store and want to place a customer order, use Amazons huge warehouse as your own! Simply buy Amazons stock with next-day delivery and sell it to your customer, and when your supplier comes through with your order you return THAT to Amazon. Also, B&M stores could use Amazon as a great way to deal with customer returns that you can't get credit for... simply buy the identical item from Amazon and return the opened item... TADA! Now you have a new boxed item again!

    Hopefully this will force shopping centres to reduce the preposterous rents they charge - if their tenants are driven out of business, those empty stores won't be generating any revenue at all. When retailers are looking at their overheads compared to Amazon's, those retail rents will be a big part of the reason why they can't get close on price, and they'll be demanding the landlords enable them to compete or end up losing their tenants completely.

      I think there's still a place for brick and mortar stores, though all of these stores will need to maintain an online presence through Amazon or similar to survive.

      I won't miss the death of Shopping Malls, but I do miss the death of community that shopping squares and markets provide.

    So much free publicity for Amazon, and all of it positive.
    Amazon's going to struggle in Australia. Perth is not going to get deliveries any faster than before. Our logistics just don't match up with condensed places like Germany, UK and even USA.
    Canada is a lot closer to our market, and Amazon have struggled there.
    We're all very used to using click & collect or similar. I bought a headset from Officeworks, they price matched, and it was delivered to me within 3 hours.
    By Amazon waiting so long to come to Aus, it's allowed all the retailers here to get themselves sorted, so that speed of delivery and yes even prices at times, are very competetive, and there's simply little advantage for Amazon

      The only advantage amazon will have is the vast inventory of product categories they carry

        Yeah only IF they do that here in Aus as well. I've a feeling it'll be a cut down inventory listing. Wouldn't be suprised if it was only 25% of USA product range

      Don't think Amazon's focus is Perth. Melbourne and Sydney will be their main areas until they open a warehouse in WA.

    Amazon in Australia is not going to be anywhere near as good in Aus as it is in the US. Low population, low density, big country. Its not going to scale down to the Australian Retail landscape and retain its benefits. I think all this doomsday talk for local retailers is a bunch of hooey.

    How Can Local Retailers Compete With Amazon Australia?

    um, competitive pricing?
    Longer opening hours? (shops in asia for example close at 10pm everyday)
    Provide better service in store?

    Tried to pay at myers or get assistance and its a ghost town.

      Yep, let's get rid of penalty rates at the same time. If you expect staff to work during those times, why should they get paid any extra. That's the diff with shops in Asia.
      If we as a population don't think Sunday is anything special, or late nights aren't anything special, then why would we pay extra to ppl to work those days/times. It's just another day right?

        Penalty rates are paid because working weekends or late nights is giving up valuable time, time that you could spend with family or friends. We pay extra for the convenience and that's how it should stay.

          Weekends are nothing special. It's not family time anymore. It's simply a day to be at the shops. The public demanding shops be open on weekends is proof that they'd rather be at the shops than spending time with the family.
          Weekends aren't sacred anymore, it's just another day

        hard yes. but they want to be more competitive? thats life

    It'll be interesting to see how many of the retailers opt to join the Amazon Marketplace themselves and ride off the back of Amazons infrastructure and traffic. A fair number, Harvey Norman, Myer, Good Guys, EB Games and the like, all have a presence on eBay already.

      There's a difference though, and ebay even pointed it out themselves earlier this week. Ebay do not compete with their sellers. Amazon on the other hand does. Amazon has full access to their sellers sales data. If they find something's selling well, with a good margin, they'll just buy that product and sell it direct, bypassing HN, Myer, Goodguys EB Games themselves.

        I imagine Amazon can work out what’s selling and what’s not very easily without retailers using them to do business. They have overseas stores not to mention data from distributers it manufacturers that they can go to.

        Last edited 29/11/17 7:11 pm

    I would assume ACCC will be watching Amazon very closely too. Amazon has been known to employ predatory pricing to gain product market share; a practice that is explicitly illegal in Australia. This can be avoided by selling home brands, however these are always perceived as inferior to branded products. I think Australian consumers would be looking at Amazon for popular brands at cheaper prices than those sold in brick and mortar stores, and this is what Amazon would be targeting to gain market share.

    Amazon's warehouses are run on slave labour over seas. They won't be able to get away with that here.

    Are local Amazon warehouses going to be processing all the returns for warranty claims?

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