The Amazon Effect

Amazon, the American retail giant, is the largest online retail business in the world. Its last reported annual revenue was $135.99 billion USD – twice the combined revenue of its nearest competitors;, Alibaba and eBay. While it isn’t a total newcomer (Amazon has been operating it’s kindle store over here for years), the arrival of Amazon has been a major wake up call to the local Aussie retail market. A recent Commonwealth Bank survey found that 41% of businesses see Amazon as a threat – and it’s no surprise; while Amazon is not only the biggest retailer on the earth – it’s also larger than most of our own retailers combined.

Aussie Retailers Won’t Win The Price War

While there’s no reason that smaller, independent businesses can’t thrive, it’s JB Hi-Fi, Harvey Norman, Myer and David Jones that are in the firing line.

Scott Kilmartin, producer of documentary ‘David vs Amazon’, explains “globally, these are the type of businesses that Amazon has a huge impact on. Businesses have to focus on their customer and what they want rather than trying to compete on price.”

The arrival has no doubt caused plenty of headaches for management teams (and investors) of retailers across the country. Many fear that Amazon’s dominance will draw shoppers away from traditional brick-and-mortar stores to Amazon’s online store, similarly as it has done in the United States. One of Amazon’s draw-cards is that it offers lower prices than other retail stores and ecommerce sites. However, for Aussie businesses, a price war is not the strategy to take. Aside from low prices and a wide variety of products, one other factor that attracts so many individuals to Amazon is its fast (and cheap) delivery options. This is where JB Hi-Fi is trying to compete. Having already launched a speedy same day delivery plan for online customers (and in some cases, delivery within three hours), they’re also upping their game to to make their online store more appealing.

What Does the Future Look Like?

We’re experiencing a wave of smaller, innovative Aussie companies who are making their push to take on established industry giants. While Amazon is putting pressure on some of our household named brands, nearly half of younger consumers (41.8%), said they would switch brands if presented with a poor buying experience – so if retailers pay attention to their customers and remain innovative and transparent, they should be able to respond directly. For Aussie businesses, a business management system (NetSuite for retail) without transparency could be fatal when competing in this new market.  Does your retail business have a software system that gives you the competitive edge?

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