CICOs brace as Amazon enters Australian market

Internet retail giant Amazon is about to change the game in Australian Retail. While Amazon does have a portal into the Australian market place, it doesn't have the infrastructure to compete head to head with Australian retailers. This is a problem that Amazon is about to correct, and that correction has the potential to considerably disrupt Australia's three hundred billion dollar retail market.
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Internet retail giant Amazon is about to change the game in Australian Retail. While Amazon already has a portal into the Australian market place, it doesn't have the infrastructure to compete head to head with Australian retailers. This is a problem that Amazon is about to correct, and that correction has the potential to considerably disrupt Australia's three hundred billion dollar retail market.

 

How Will The Australian Retail Landscape Be Affected?

Up until now, the Australian market has been dominated by major local players on a relatively even playing field. Amazon's intention to build an operational infrastructure in Australia means that even larger local retailers such as JB Hi Fi and Harvey Norman will see a considerable drop in retail sales.

Big retailers will not be the only ones affected by Amazon’s local presence. Lower prices, faster delivery times and lower shipping costs will make them a genuine threat to small and mid size retailers who once counted convenience among their key selling points.

 

One Of The World’s Biggest Retailers

Amazon began by selling books online and has grown to become the largest single Internet Retail outlet in the United States, receiving 50% of the American dollars spent online.  This is due to the philosophy of its founder and chief executive officer, Jeff Bezos.  It is a philosophy of internal cutthroat competitiveness between employees, some would call it employee abuse, married to an obsession with keeping prices low for consumers.  It is also a philosophy that values expansion over profits and has resulted in staggering growth over the last decade.

Amazon has taken full advantage of its low overhead in relation to brick and mortar stores.  Its warehouses and third party vendor affiliates provide a high degree of choice for consumers while the "maintain low overhead and keep prices low" approach often enables Amazon to undercut other retailers in a number of different markets.  

For example, Amazon carries some 343,000 items of clothing and accessories, which is almost 50,000 items more than Wal-Mart.  Amazon seems set to disrupt the clothing market, in the way that it has already disrupted and pretty much closed down the brick and mortar bookstore.  In fact, it is aggressively expanding into the apparel business. And Cowen and Company's estimate that Amazon's cut of the American retail clothing market will rise to 50 billion dollars by 2020 is probably accurate.

Amazon's continuous expansion into an increasing number of retail markets means that it has the potential to disrupt the retail space of any country.

 

Sights Set On Australia’s Supermarkets

Amazon is also poised to enter the grocery retail market in Australia through AmazonFresh. This is a very competitive market with traditionally high overhead, and the sheer investment required to build and operate a traditional grocery store are major reasons why the retail grocery market is a slow growth industry. This may change with the introduction of AmazonFresh; and when coupled with Prime Now, which offers two hour delivery, could seriously disrupt the rather insular Australian grocery market.

However, it won't be all that easy for Amazon to establish itself in the grocery business. Grocery shopping is traditionally based on customer loyalty and established retailers have considerably more experience with the needs of Australian consumers.  Amazon will no doubt look to carve out market share through technology and innovation.

Take for example, Amazon Go, Amazon’s walk-in-walk-out checkout technology. Using Amazon Go, customers can simply walk into a physical Amazon location, pick what they want off the shelves and walk out. The cards they have pre-registered with Amazon are debited for the amount of purchase and they receive a text or email receipt.

The novelty of Amazon Go alone will surely win them countless early adopters and tens of millions of dollars in publicity. Customers seeking greater convenience will also be drawn toward newcomer. But the most impressive arrow in Amazon’s quiver is the technology customers don’t see. Deep integration between point of sales, inventory and supply chains provides efficiencies and savings that many retailers can’t even fathom.

 

Easier Said Than Done?

Of course, Amazon Go does present reason for concern. What is the cost of deploying such technology? How secure will it be? Does Amazon plan on directly competing with the established street level retailers? Apparently, it does. CIOs of established retail firms will need to update how their companies interface with consumers in order to compete. This won't be cheap or easy.

On a more fundamental level, Amazon will need to find adequate real estate to enter the market, which is easier said than done. Given that a Coles or Woolworths is never too far away, it remains to be seen how far would-be customers will travel out of their way to save a couple of minutes shopping at an Amazon Go.

At the moment, we do not know how deeply Amazon will penetrate the Australian retail landscape, but we can assume that all of Amazon's technical "advances" will probably be offered at some time in the future. If history is anything to go by, we can expect Amazon to move one step at a time. The very first step will be to establish an infrastructure strong enough to enable future expansion. And so, we can monitor Amazon's intentions by observing the type of infrastructure they build.

 

Traditional Retailers To Join Forces

Jeff Bezos has built an empire based on customer convenience. Australian retailers must place customer service and convenience as the highest priorities if they are to compete. This means expansion of online presence and the development of dedicated customer service applications. Perhaps it may even require a, formerly unthinkable, cooperation between Australian based retailers in order to present a unified alternative to Amazon's encroachment on their retail space. Regardless of what happens, it won't be business as usual. Even so, there are no guarantees.

Oddly enough, much of the technology that backs up Amazon has been around for a while but has not been picked up by established retailers.  This is probably due to the desire to please stockholders with high dividends, rather than to reinvest profit into building future infrastructure.

When it comes to innovation, Amazon is now the clear leader in brick and mortar retail. The next step is to make that innovation a reality. Amazon is poised to turn leadership in ideas into actual leadership on the ground. Australian retailers must keep this in mind and take the steps necessary to lead their retail space. If they don't, then Amazon certainly will.

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