As Australia’s $222 billion retail industry enters the fight of its life against e-commerce giant Amazon, the advice from industry experts is clear: know your enemy, lift your game or risk going out of business. Since April, when Amazon confirmed its plans to open an Australian distribution centre in 2018, the retail industry has been in a state of flux. Expert commentary has wavered between catastrophic predictions and share price downgrades, to reassurance and soothing tones.
But in one area, analysts agree: Australian retail needs to be “on its game” as a new era of competition dawns. So how can retailers ward off the Amazon threat?
Ready or not, here they come…
In March this year, The Courier Mail flagged Amazon’s imminent arrival but noted most retailers were totally unprepared for how the e-commerce behemoth would change the nation’s retail landscape.
They reported a survey of 1000 businesses by CommBank found: “Almost half of retailers were “unfazed” by Amazon’s arrival and only 14 per cent had plans for how to compete with the US titan…
“Just 11 per cent of retailers saw Amazon as a threat, despite warnings from Citibank that Amazon could grab up to $4 billion in sales from the likes of Myer, Premier Investments and Harvey Norman.”
Three months later that complacency appears to have changed on the back of endless media coverage and the downgrade of a series of publicly listed companies including Wesfarmers, Myer, JB Hi-Fi and Harvey Norman by stock market analysts Morgan Stanley as outlined in Business Insider.
But how do retailers gear up to compete with a global player whose local plans remain under tight wraps?
Know your enemy
According to the Australian Financial Review, before going into any battle, it’s important to size up your enemy. “…companies bracing themselves for the Amazon assault need to know what makes the retail behemoth so hard to beat”.
The trouble is Amazon hasn’t exactly been forthcoming as to what it intends to do once established on Australian shores. The Fin Review further reveals some clues may be found in the trademarks the company is filing. Amazon has taken out 250 trademarks, covering 30 classes of goods and services in Australia.
It includes food and beverages, baby goods and toys, clothing and accessories, computer software and hardware, financial services, telecommunications and digital services including video streaming, e-books, audio books, music and cloud storage. Meanwhile Morgan Stanley predicts Amazon will first launch physical media, move into electronics and then apparel.
“Categories that are likely to take far longer are dry goods, fresh food, and auto parts, given the challenged economics of operating the delivery model and higher initial cap-ex required to undertake distribution,” according to Morgan Stanley research covered in the Sydney Morning Herald.
Head of Colliers International, Michael Bate told the SMH it’s not just major bricks and mortar stores, but also online retailers who would feel the impact of Amazon.
“Amazon will hurt the other groups, such as Kogan and Catch of the Day, among many others if these sites can’t keep up the traffic,” Mr Bate said.
“We all saw what happened to other search engines when Google arrived and Amazon, which has the largest website in the world, will certainly take traffic away from other online sites.
“And retailers, such as Harvey Norman and JB Hi-Fi, should be getting to know Amazon and get their products onto the Amazon website.”
Getting to know Amazon has been a combat offensive actively embraced by Wesfarmers, the Australian retail giant which owns Coles, Kmart and Target. They ramped up their retail strategy over a year ago in response to Amazon rumblings.
“We have been expecting this for a long time. We have a healthy sense of paranoia,” Wesfarmers Chief Executive-elect Robert Scott told the Sydney Morning Herald in April.
“We are not complacent around the competitive risks.”
Although reluctant to reveal details, Scott confirmed executives from Wesfarmers had met with team Amazon, discussing general processes and logistics but not the landscape of the Australian retail or supermarket sector.
“The challenge for us with discounters like Amazon is that our models are labour intensive and traditional retailers have the legacy costs of running and owning or leasing property.
“The challenge is to become more productive and to differentiate based on store experience.”
Be agile, be ready, be well prepared
According to Commonwealth Bank National Retail Manager Jerry Macey, the key to survival for Australian retailers in an environment that includes the likes of Amazon is to innovate their business procedures to find new ways to provide for their customers.
He told the Huffington Post: “We don’t quite know what [Amazon are] going to land with yet. That is why we’re suggesting that an innovative culture is probably the way to combat something that you can’t see yet,” he said.
“The best way of coping is being agile, being ready, being well planned.”
MrMacey continued that while many businesses said they were innovating, few were improving operations to effectively compete. Amazon is a renowned innovator with a view to the future that includes robotics, drone delivery and has seen mobile Point of Sale taken to a whole new level at their self service Amazon Go prototype store.
“Less than half of retailers across the country were deemed to be “innovation active” in terms of how they manage their business structures according to the survey,” The Huffington Post continued.
“Macey believes most companies are only innovating small aspects of their services, such as product design, and need to establish a “multi-dimensional method” to be able to respond to the challenge of Amazon.”
With Amazon now scouting for sites for a major distribution and fulfilmentcentre and calling on local sellers to set up shop on Amazon Marketplace, retailers need to move even faster to be Amazon-ready, the Financial Review argues.
“This includes addressing differences in pricing, boosting customer engagement and loyalty, using data analytics to better understand shopping habits, bringing their website and mobile stores up to speed and putting in place faster delivery systems.”
The final word
Australian retail has just months to lift their game ahead of Amazon’s arrival in 2018. In the interim, it’s not just securing an online presence, differentiating their products or assessing Amazon’s potential impact that should be their focus.
The customer experience should be at the forefront of Australian retailer’s combat campaign, because arguably this is at the heart of the Amazon ethos and Amazon effect.
“Our focus is on providing the best shopping experience we can for customers all over Australia,” Amazon maintains.