Sue Mitchell
December 5 2017
AFR
Amazon threatens to ruin Christmas for Australian retailers by launching its long-awaited retail offer on Tuesday with one-day deliveries in most capital cities and 30 per cent discounts on big-brand toys and clothing.
After what appears to have been a false start on Black Friday, the e-commerce giant confirmed it would launch on Tuesday, selling “millions” of products across 23 categories including toys, consumer electronics, sporting and outdoor goods, tools and home improvement, beauty products, clothing and accessories.
The timing of the launch, coming just three weeks before Christmas and amid the most challenging trading conditions in a decade, will add to sales and margin pressure at retailers such as Myer, David Jones, JB Hi-Fi, Harvey Norman and Super Retail Group.
Citigroup believes Amazon could generate $200 million in additional sales before Christmas, disrupting like-for-like sales growth and margins for established retailers.
Amazon’s Australian country manager Rocco Braeuniger said the e-commerce giant, which has annual revenues of $US136 billion, hoped to earn the trust and custom of Australian consumers for years to come by providing a great shopping experience and by constantly innovating.
“Focusing on customers and the long term are key principles in Amazon’s approach to retailing,” said Mr Braeuniger, reiterating comments at Amazon’s first Australian seller summit last month, when he said Amazon would not sacrifice long-term success for short-term results.
Delivery options
Amazon will initially offer a three-tier delivery service, with one day “priority” delivery in Sydney, Melbourne, Brisbane, Adelaide and Canberra for $9.99 (on orders delivered by Amazon rather than marketplace sellers), one to two-day delivery to Perth and other major cities for $11.99 and other areas for $19.99.
Customers who opt for “expedited” delivery will receive their goods in two to seven business days for a fee ranging between $5.99 and $9.99. Amazon will also offer free delivery for orders worth more than $49 but delivery will take three to 10 business days.
Amazon plans to launch its free subscription-based delivery service Prime in mid-2018, possibly coinciding with its annual Prime Day promotion in the US in July.
Amazon’s first-party retail offer will be augmented by Amazon Marketplace, where thousands of Australian-based and overseas small to medium-sized suppliers and retailers will sell their wares.
Other services such as Fulfilment by Amazon, where Amazon handles distribution and deliveries on behalf of Marketplace sellers, and the Echo and Alexa voice-activated ordering systems, will be launched in 2018.
Customer orders will be fulfilled from Amazon’s new 24,000-square-metre distribution centre in Dandenong South in Melbourne, which is now operational, and delivered to consumers through several third party providers including Australia Post.
Amazon will also start selling new signature devices for the first time including Amazon Fire TV stick, a USB-style streaming media player that gives viewers access to thousands of movies, TV shows, apps and games, and Kindle e-readers.
Special deals
Launch day special deals include 30 per cent off the recommended retail price of toys such as Barbie, Batman, Hot Wheels Disney and Thomas the Tank Engine, 30 per cent off select Calvin Klein men’s and women’s underwear, 30 per cent off Tommy Hilfiger polo shirts and 20 per cent off Sunbeam appliances.
Delivering its opening pitch to parents, Amazon is also offering a month’s supply of Huggies nappies for $65 with free shipping.
Two key categories missing from Amazon’s launch are food and liquor – much to the relief of Coles, Woolworths and specialty food and liquor retailers. Amazon will initially sell kitchen wares and appliances, such as Sunbeam slow cookers and skillets, but not packaged or fresh food or beverages.
However, Amazon will add new categories and products and more services and delivery options over time, increasing pressure on incumbents across the board to lift their game.
The nature of Amazon’s Australian launch suggests it is adopting a more aggressive approach to the $300 billion retail sector than it has in other countries such as Canada.
For example, the number of categories at launch (23) is well above that in other countries at launch and represents half the number of categories available in its most developed market, the US.
Amazon started selling products across half a dozen categories in Spain in 2011 and launched Prime within months of entering the market. But in Canada, Amazon launched with only a handful of categories in 2002 and took eight to 12 years to roll out a broader offer, while Prime was not launched until 2013.
Delivery times are also ambitious, given Amazon’s lack of infrastructure compared with established bricks and mortar retailers such as JB Hi-Fi, where “express” deliveries can take five to seven days.
Key constraints
In a recent report, Macquarie Equities analysts said Amazon needed a broad product breadth and scale in distribution in order to overcome key constraints such as high logistics costs in Australia.
Macquarie believes Amazon’s expansion will lift online retail penetration from 7.6 per cent of total retail spending to 12.5 per cent by 2025. Amazon is expected to capture 25 per cent of online sales, similar to its share in Britain, lifting revenues from an estimated $1 billion now to $14.5 billion.
UBS believes Amazon is likely to snare only 2 per cent of retail sales within five years, growing revenues to about $3.5 billion by 2023 and crimping retailers’ sales about 2 per cent.
However, Amazon will have a material impact on retailer profits by prompting more consumers to shop online, where retailers’ margins are thinner, by driving retail prices down and by forcing retailers to invest heavily in e-commerce infrastructure that may take years to deliver returns.
UBS estimates margins for major listed retailers will fall 100 to 200 basis points by 2023, dragging down earnings as much as 20 per cent, with Super Retail Group, Myer and JB Hi-Fi the most exposed
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