Two Months After Amazon's Australia Launch, Retailers Down Under Aren't Panicking
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BRISBANE, AUSTRALIA — Two years ago, the managing director of Australian retail conglomerate Wesfarmers delivered a chilling message.
“Amazon will eat all our breakfasts, lunches and dinners,” Richard Goyder told a retail forum in Sydney. Back in 2016, Amazon had not yet opened for business on the continent.
The company launched Down Under in December, after years of escalating hype over its arrival, to a lukewarm reception. While retailers in New York City have had plenty of time to adjust to Amazon’s increasing grip on consumers, in Australia it is a brand-new reality.
There is no Amazon Prime yet, but Amazon Echos have been made available to local buyers in the past few weeks. The fulfillment center is in Dandenong South, a suburb of Melbourne.
Amazon has its work cut out for it operating in this market; Australia has a population of 24 million, but a majority of its residents live in urban centers miles apart.
Distance will not be its only challenge.
Australian retailers have had plenty of time to beef up their online presence to go head-to-head with Amazon’s offerings. What’s more, Australian malls and shopping centers, sources said, are far better positioned than their American counterparts to defend against the modern consumer’s swing toward online shopping.
Jeff Bezos may be coming for Aussie retailers’ breakfasts, lunches and dinners, but they are ready to put up a fight.
“Australian retailers have had a long time to prepare for this … all we’ve been hearing for the past couple of years is Amazon, Amazon, Amazon,” said Colliers International Director of Research Daniel Lees, who is based in Sydney. “Whereas when Amazon launched in the U.S., they were groundbreaking. It took retail by storm.”
In a statement following the Dec. 5 launch, Amazon said it was a landmark day in company history, and visitor numbers far exceeded expectations.
In total, the Australian retail sector is worth about $320B a year, according to Queensland University of Technology Associate Professor of Marketing and International Business Gary Mortimer.
Online retail accounts for around $25B to $26B, which is relatively small as far as Amazon is concerned. Online shopping represents less than 8% of total retail spending in Australia. By comparison, in the United States, that figure is closer to 11%, according to Mortimer, and 15% in the United Kingdom.
“Amazon is just another platform,” Mortimer said. “If you are a non-online shopper, you are not suddenly going to go online, and if you are an infrequent online shopper, you are not going to increase your online shopping just because Amazon is here.”
Most at risk, according to Mortimer, are the online platforms that Australians have been using, operations like eBay and Chinese billionaire Jack Ma’s Alibaba. But if Amazon can provide a smoother payment and delivery process than what is offered now, Mortimer thinks buyers will make the jump.
Just like in other parts of the world, brick-and-mortar stores in Australia selling items like toys, automotive parts and sporting equipment — the things consumers do not need to touch before buying — are facing heightened uncertainty.
“A Barbie doll is a Barbie doll, no matter where you buy it,” Mortimer said.
With that in mind, some Australian retailers have already gone on the offensive. Grocery store chain Woolworths heavily expanded its “click and collect” option and is testing one-hour delivery. The country’s biggest home entertainment retailer, JB Hi-Fi is now trying out same-day delivery.
“They are recognizing the challenge,” said Gartner Principal Research Analyst in Global Retail Supply Chain Thomas O’Connor, who describes Amazon’s launch in Australia as a “Trojan horse” that will creep up on Aussies. “Where we’re going to need some transformation on the Australian retail side is really going to be on supply chain."
In the past, O'Connor said, Australians have been able to get goods from London faster than from retailers within Australia.
“A lot of them left it to the last minute to think about the changes their business would require,” consulting firm Retail Life’s founder, Marguerite Bell, said. “It’s not just about Amazon … retailers who have been doing the same thing for many years can’t continue to do that — there are too many changes.”
Retailers and retail landlords have been closely monitoring e-commerce’s impact in the United States. News like Michael Kors planning to shutter up to 125 stores, Ralph Lauren closing its flagship on Fifth Avenue and rapidly closing malls across America started to “scare the hell out of everyone” in Australia, Lees said.
However, he said, it is a different landscape here. Most large malls in Australia are anchored by supermarkets — a rarity in the U.S. — which keeps foot traffic high. Retail landlords are good at keeping a diverse tenant mix, with many shopping centers already featuring restaurants, food stores and cinemas, all places that draw shoppers in.
Although the country’s department stores, which are already experiencing lagging performance, are large occupiers of space, they only pay a few hundred dollars per square meter. Specialty stores, according to Lees, pay eight times that rate.
If Amazon’s presence edges those stores out, landlords may be able to replace them with higher-paying tenants. Ultimately, there is no real way to know how, or if, Amazon will shake up the market.
“It’s really hard to underestimate a company like Amazon ... it’s impossible to tell how powerful they could become,” Lees said. “They are highly determined, and they throw a lot at high-conviction ideas — if they have decided to come to Australia, they are not going to give up quickly."