Retail in Australia is about to be completely transformed, with Amazon finally announcing they will bring their full suite of retail services to Australia as early as September 2017. But what will this disruption mean for you as an Australian retailer? One thing is for certain: Amazon’s arrival is going to shake things up in the Australian retail sector.
When the Sydney Morning Herald reported on 20 April that Amazon would “threaten the supremacy of established local retailers” and that an Amazon executive had said, “We are going to destroy the retail environment in Australia,” it reflected the current general sentiment toward Amazon’s expansion. But is it truly all doom and gloom, as some media outlets are saying? Or is this an opportunity for Australian retailers to rethink their growth strategies?
What is true is that the arrival of Amazon will change the face of retail in Australia. Retail analysts estimate that Australian consumers already spend over $700m each year on Amazon.com.au and Amazon’s overseas sites. And Citigroup’s Head of Research, Craig Woolford, estimates that Amazon’s Australian sales could exceed $4 billion within 5 years. That equates to 14% of total online sales and over 1% of total retail sales in Australia. These figures cannot be ignored, but they also do not mean every retailer will suffer declining sales. If you proactively implement a smart sales strategy that takes advantage of the changing retail landscape, you may even see your sales increase.
The only way Australian retailers will continue to compete in the new environment is by understanding how Amazon operates and why it is such an appealing marketplace for consumers and build your business around it, treating Amazon like it’s just another sales channel in your multi-channel strategy—which it is. Neto is currently in the final stages of integrating our ecommerce platform with Amazon, which will enable our clients to sell products on Amazon while managing orders and inventory in one central location.
The time has come for Australian retailers to consider the best way to stay profitable in this shifting retail environment. Here are seven things you should keep in mind when it comes to Amazon’s offerings:
1. Some shoppers will exclusively use a single marketplace, such as Amazon, eBay or Alibaba. So if you want to reach these online shoppers and make them your customers, you need to be in these key marketplaces. Jumping on board Amazon’s arrival will give you access to a wider audience than ever before.
2. Amazon’s marketplace gives customers a single storefront to search or browse for products across all the individual retail stores it hosts. Retailers on Amazon sometimes seem more like suppliers for Amazon’s brand, and it’s rare for Amazon shoppers to go browsing a single retailer’s products. So every time your customers search for your products on Amazon, they’ll see alternative suggestions from your competitors at the same time. And Amazon’s algorithms only list the three lowest prices for a product, so you may be forced to sell your products at a lower margin if you want to be recommended to shoppers. Read more about pricing for Amazon.
3. The customers you service through Amazon are ultimately Amazon’s customers, not yours. Amazon collects a massive amount of search and shopping cart data about them, but it doesn’t necessarily share that data with you. So you’ll need to get creative if you want to keep in touch with customers who purchase your products through Amazon, and find ways to encourage shoppers to directly share their information with you.
4. Amazon wants its sellers to use “Fulfillment by Amazon” (FBA), so your new customers on Amazon will not add to your volume shipped with your current freight providers. Further, some of your customers may prefer to shop on Amazon than through your existing stores, which will actually reduce your freight volume. FBA will probably make shipping simpler for you, but it may also make it harder for you to negotiate cheaper freight deals with your existing freight partners.
5. Unless you have an exclusive product or exclusive sourcing relationships, you’ll find it hard to achieve any pricing advantage over your competitors on Amazon. Where your own online store lets you differentiate your offering with customer service and support, price is the main differentiator in a marketplace, and you’re unlikely to get ahead of your competitors unless you’re willing to undercut their prices.
6. Customer reviews on your online store are important, because they boost your search engine rankings and improve buyer confidence. But when it comes to marketplaces like Amazon, a high customer rating is absolutely essential. Feedvisor’s 2016 study of Amazon shoppers revealed that 87% of shoppers on Amazon always or sometimes check seller ratings before buying. So one of the best things you can do for your Amazon selling strategy is work hard towards getting the best seller rating you can. Read more about how to get five-star Amazon reviews.
7. Amazon is starting to bring out their own products in a number of categories, and therefore becoming a direct competitor to some brands. They would’ve selected these products based on all that data we referred to earlier, so it’s unlikely you’ll be able to outperform Amazon itself in these categories. But you can copy their strategy, and use your sales data to select which products you’ll sell on Amazon, and which ones you’ll sell through different channels. It’s an effective strategy for dealing with direct competition, because it tailors your product offerings to the customers each channel is already attracting.
I think it’s highly unlikely that Amazon will “destroy” Australia’s retail environment, but it’s certainly going to disrupt the status quo and change how we view retail strategy. The question for your business is: how ready are you to take advantage of Amazon’s arrival in Australia?
If you're ready to really scale your business it's time to think about your omni-channel retail strategy. Download our free Amazon guide to find out how to expand your retail empire.