What does Amazon's arrival mean for Australia?

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This article appeared in the July 2017 issue of CRN magazine.

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What does Amazon's arrival mean for Australia?
There was once a time when the biggest question on the minds of many retail-oriented resellers was, “When will Amazon bring its retail offering to Australia?” Then, in April this year, Amazon announced it was coming Down Under. 
 
All that did, of course, was raise more questions.
 
The rampant speculation surrounding Amazon’s entry can make its potential impact easy to dismiss as hype. But there can be no doubting the shadow it casts across the global retail landscape.
 
Since leaving his role as director of marketing and digital at Scentre Group (owners and operators of Westfield shopping centres) John Batistich has studied Amazon at length; he says it is worth keeping in mind the company’s fundamentals when trying to predict its impact.
 
“Amazon has gone from a startup online bookseller to the fourth most valuable company on the planet,” Batistich says. “And through that 20 years since its IPO, they have revolutionised and disrupted multiple industries: retail, publishing, logistics, devices, apparel, product search, payments, content creation and cloud computing.
 
“With US$460 billion in valuation, and last year generating just under US$140 billion in sales, they are on a trajectory to be the first trillion-dollar value company.”
 
Batistich says Amazon’s culture is driven by customer obsession, relentless invention, excellent execution and a long-term view of value. “They have replaced profitability with vision and growth, as they reinvest almost all of their profit in platforms to grow at all costs,” Batistich says.
 
That includes investing in Amazon’s premium membership service, Prime, which offers free and fast delivery among a host of other services. “Prime has 66 million members who account for about US$73 billion in revenue,” Batistich says. “What they are providing is a whole lot of added value around free books, free gaming, free storage and free video.”
 
But for now, how Amazon will enter the Australian market remains a mystery. In the absence of any answers from Amazon (we did ask), the rumour mill has been working in overdrive, with interested parties scouring job listings and real estate news to gain any glimmer of insight into the US‑based behemoth’s intentions.
 
Some reports suggest Amazon has already leased a warehouse in Sydney. Other rumours suggest the company could be looking at leasing at least two facilities in Sydney and Melbourne, along with additional space in Adelaide, Brisbane and Perth (sorry, NT and Tasmania).
Part of Amazon’s allure for consumers is its famed logistics capabilities and resultant speed of delivery. While some pundits regard this as a potential stumbling thanks to Australia’s congested cities (and the vast distances between them), another source suggests that Amazon will lease sub-distribution facilities in the heart of Australia’s densest population centres.
 
But without an official announce­ment from Jeff Bezos’ company, all of this remains conjecture. So too is any inkling of the potential brands that Amazon will carry, or the distribution companies that might supply it.
 
Holding its cards
 
A survey of potential brands and distributors by CRN uncovered none who were willing to divulge on the record whether they will sign commercial arrangements with the company, leading to two possible conclusions: they are either unable to respond thanks to current or potential commercial arrangements, or they simply don’t yet know themselves.
 
As a result, the potential impact of Amazon on brands and distributors is purely assumption. But many fear that Amazon will force resellers into a race to the bottom on price, while the concern for distributors is that Amazon will use its global buying power and volume to disrupt existing distribution arrangements.
 
According to retail specialist and head of SAP Hybris for Australia, Stuart O’Neill, Amazon’s tendency is to leverage existing global relationships to drive down buying prices. “Disties that have those relationships are going to have a competitive advantage over those who don’t,” O’Neill says. “So that may put a huge amount of strain or stress on those other traditional disties who have supplied to the likes of JB  Hi-Fi, Myer, David Jones, and other channels to market.
 
“[Amazon] are all about driving cost out of the business, and if they are able to leverage their huge buying scale, that becomes useful. But without them releasing a lot of information, we can only go on what we see them do elsewhere.”
O’Neill says that retail channel companies will need consider how they might otherwise counter Amazon’s buying power.
 
“Existing channels need to demonstrate specific value back to their customers,” O’Neill says. “It really is a catalyst for change, and it is going to drive organisations to become far more competitive in how they deliver services. They are going to have far less of a margin to play with, and it will also mean they can’t charge for shipping costs because Amazon essentially doesn’t.”
 
If popular electronics brands do become available through Amazon, retailers might also need to become more creative in terms of what they stock.
 
Indian-based data analytics company Ugam has helped numerous global retail brands develop their Amazon defence strategies, and its co-founder and chief commercial officer, Mihir Kittur, points to US-based Best Buy as offering one potential path to salvation.
 
“They have done a phenomenal job with private-label products,” Kittur says. “Accessories are now mostly private label at Best Buy, and that is worrying a lot of manufacturers because accessories are a high-margin business.”
 
Kittur says retailers that want to successfully compete against Amazon would do well to under­stand its internal structure, which forgoes traditional functional silos such as sales and marketing in favour of results-driven teams.
 
“Most people typically work at Amazon for four to six years, and they will change their roles four times in that space. They’re constantly striving to look at the next project,” Kittur says, “So while folks talk about the adoption of technology or data analytics, the bigger problem is about making the cultural change to be far more nimble and customer obsessed.”
 
Defensive manoeuvres
 
The absence of knowledge regarding Amazon’s plans has not stopped players from taking active steps. Paul Harman, CEO of specialist technology distributor Alloys, says he has spent the past two years coming up with a plan to defend his business.
 
“There is so much information, but we really don’t know how much of it is fact and how much of it is fiction,” Harman says.  “All of us can see significant disruption right across the channel, and I don’t think you can impact one element of the channel – like retail – and not have it impact the upstream and downstream.”
 
As a value-added distributor focused on specialist fields, he does not expect Alloys to be exposed in the same way distributors of more consumer-oriented goods might be.
 
“In the products we sell, there is a tactile experience of being able to see, touch, feel and understand, rather than just looking at the brochure and the price,” Harman says. “So we continue to invest and launch new ways for customers to access information. 
 
“The expectation now is that our business should be available 24 hours a day, seven days a week – and we are a distributor who had been used to dealing with hours spanning 8 o’clock to 6 o’clock on Monday to Friday. We have to be working in a way that a customer now expects.
 
“But I won’t know for another two or three years whether I have got any of that right.”
With so many questions about Amazon’s arrival in Australia yet to be answered, he’s not alone.

Turn the frown upside down

While the unknown unknowns regarding Amazon are sizeable, experienced retail consultant John Batistich offers this four-point plan for any retailer wanting to get on to the front foot:
1 “The first thing I would do is work with partners to get exclusive products and ranges that are not comparable on Amazon.”
2 “Then, I would organise my business to match Amazon’s pricing, which is going to be hard, because they have bots running over the web to ensure that they’re always equal or cheaper than anything else, and will use real-time pricing.”
3 “I would invest absolutely in immersive technology experiences and services where you guarantee you will help people learn about technology, install it and service it. I would offer a service overlay as part of a membership, such as a free, personal install tutorial to walk through.”
4 “Then clearly I would work on getting fulfilment fast and free.”
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