Amazon Australia launch triggers 'step change' in online shopping

Sue Mitchell
June 19, 2018 
AFR

Amazon’s Australian launch has provided a much-needed shot in the arm for the $25 billion online shopping market, with overall customer traffic rising 9.1 per cent since the e-commerce giant added new products such as electronics, homewares, toys and clothing to its local site in December.

As Amazon and Australian omni-channel and online retailers sharpen their offerings, consumers have shifted from searching and buying on overseas retailers’ sites to domestic e-commerce sites, according to research by global media and marketing services company Mindshare.

Visits to Amazon sites grew 24 per cent year-on-year between February and March after dropping by 11 per cent  in 2017 and online traffic excluding Amazon rose 8.3 per cent.

However, not all Australian retailers are benefiting from the rising tide.

According to a major Mindshare study of online shopping habits, local brands including Catch Group, Kogan.com, Wesfarmers’ Kmart, Woolworths’ Dan Murphys, Rebel Sport and The Iconic have enjoyed stronger web traffic.

But mid-market and mid-sized brands including Harvey Norman, JB Hi-Fi’s The Good Guys, Super Cheap Auto, API’s Priceline, Temple & Webster, Booktopia, and Cotton On have lost traffic.

Market leader eBay has also lost ground, with monthly traffic down 0.3 per cent year-on-year between February and April, despite eBay launching a range of new services including price match, guaranteed delivery and a free delivery subscription service to compete against Amazon.

“Amazon’s arrival has coincided with a lift in online shopping as a whole – it really has prompted a fundamental step change in how people are shopping online for brands in Australia,” said Mindshare chief strategy officer Joe Lunn.

“However, not every brand has seen a boost or a benefit from the arrival of Amazon. There are still a number of brands particularly those mid-sized brands sitting in specialty verticals that are going to struggle,” Mr Lunn told a Mindshare presentation in Sydney on Tuesday.

“We’ve already seen some brands falling back post the launch of Amazon in this market.”

“If the category as a whole has grown 9.1 per cent year-on-year eBay lost 9.5 per centage points of growth off the back of Amazon’s arrival and that’s a big hit to their market share,” he said.

Excitement fades

Amazon itself also failed to live up to the pre-launch hype and Australian consumers are less excited now about Amazon’s expansion than they were 12 months ago.

The biggest disappointment has been felt by consumers who were previously shopping on Amazon.com, with ‘excitement’ dropping from 41 per cent to 28 per cent as Amazon’s local offering failed to replicate that overseas. “Consideration’ or propensity to buy had fallen from 19 per cent to 15 per cent.

Despite this disappointment, visits to Amazon sites had risen 24 per cent or 1.3 million a month year- on-year between February and March after dropping by 11 per cent  in 2017.

“So not only has Amazon seen a significant bump in audience traffic over that period but the entire category has risen in line with that  –  that’s a fundamental step change for online shopping in Australia,” Mr Lunn said.

Mr Lunn said Amazon did not appear to have convinced shoppers on its overseas sites to make the switch to the local platform and this may have prompted its decision to use changes to the goods and services tax regime as an excuse to switch off local access to amazon.com.

Last month Amazon said it would stop online shoppers from importing products from its overseas sites when the new GST regime comes into effect on July 1.

“In order for Amazon to be a real success in this market it will be a huge priority for them to expand not only the breadth of brands they’re offering but bringing people in to buy in to those verticals,” he said.

Prime a ‘game-changer’

The launch of Amazon’s subscription based delivery service, Amazon Prime, would be a “game changer,” he said, and would encourage more brands to join the platform. 

However, the initial impact of Prime would be muted by the fact that the bulk of products on amazon.com.au are sold by third party sellers and are not eligible for Prime.

“From a consumer perspective free and fast delivery is what people are looking for from a service like Prime and they’re actually willing to pay for it,” he said.

Amazon launched Prime on Tuesday, offering benefits including free two-business-day delivery on eligible products and access to videos, e-books and gaming for $6.99 a month or $59 a year – less than half the price of subscription in the US. 

Mindshare’s research suggested consumers would be willing to pay about $14 a month.

Morgan Stanley analyst Tom Kierath agreed Prime would change the game in Australia.

“The sooner-than-expected launch shows Amazon’s confidence in delivery (and) the A$59 annual fee is low vs other developed countries – we think this shows Amazon’s high long-term aspirations for Australia,” Mr Kierath said. 

Mr Lunn said that while Amazon’s launch had not lived up to the hype it was early days and Australian consumers and retailers needed to recognise Amazon was in for the long haul. 

“This is a long term play, they’re not going to be judging success by the first six months of their development.”

Morgan Stanley believes category killers such as JB Hi-Fi and Super Retail Group are relatively well insulated from the Amazon effect but department stores are most exposed and the market is underestimating the impact on Wesfarmers, which owns Kmart and Target.

Citigroup analyst Bryan Raymond said the impact of Prime would depend on execution.

“On paper, Amazon has competitive prices, a very wide range and attractive delivery terms. In practice, the extent of the Amazon impact will be determined by a more compelling range of first party product and maintaining their low price position as well as executing on its two-day delivery proposition,” he said. 

Over time, however, Amazon would drive higher online penetration at less favourable online economics for rival retailers, particularly electronics retailers JB Hi-Fi and Harvey Norman, Mr Raymond said.