By Toutatis! The sky isn’t falling on retail just yet
OPINION: Fifty years ago this month, Goscinny and Uderzo’s graphic novel Asterix in Britain was first published in English.
Considered by many to be the best of the 36 Asterix books, the work features Asterix’s British cousin Anticlimax seeking a magic potion so his village can hold out against the Roman invaders.
Full of satire of everything from rugby to boiled pork, the book starts with chief Vitalstatistix giving Asterix and Obelix permission to go and help the besieged Poms. Vitalstatistix is best known for his rallying cry ‘‘we have nothing to fear but the sky falling on our heads’’.
Listening to some of the doomsayers over the past two weeks talking about e-commerce giant Amazon’s impending opening in Australia, it does feel that a lot of people are worried the sky will indeed fall for retailers on both sides of the Tasman.
You’d be a mug to underestimate the impact of the Seattle crowd, particularly if you’re flogging pure commodities with fat margin. But I’m not sure that it’s going to represent the end of days being predicted by some for local retailers.
Take Trade Me as an example. Two weeks ago, Trade Me shed $120 million in value after an analyst’s report painted a negative outlook against the context of Amazon’s expected rollout in this part of the world.
Such a reaction overlooks how the online marketplace makes money. For the previous half-year reporting period Trade Me made $13m of revenue from jobs, $17m from property and $31m from cars – none of which are likely to feel any impact from Amazon’s expansion.
A further $20m came from advertising, payments and insurance – also insensitive to Amazon. That leaves $35m from the main marketplace, about half of which is used goods ,which are also unlikely to be affected.
So that leaves about $17.5m of revenue at risk. If Amazon is wildly successful when it finally launches for Godzone and if it has killer Kiwi fulfilment, then it might cut that by 20 per cent, which works out to $3.5m of revenue. Not a huge number against Trade Me’s top line of $115m for H1 2018.
Amazon is also likely to affect some verticals more than others. According to the latest BNZ Marketview monthly report on local online retail sales, the biggest three categories for new online sales in New Zealand are electronic goods, food (including health supplements), and fashion/footwear.
While there will be an offset for convenience (especially around food) these sectors are likely to be hit harder than others. Likewise, pure commodity plays of consumables – DVDs, CDs and books – are likely to feel some pain, though in an age of streaming they have a limited future anyway.
On the other hand, liquor, furniture, hardware, fresh grocery and pharmaceuticals are less likely to be impacted, as a result of shipping costs, de minimis levels and regulatory issues.
Showrooming – the practice of visiting a physical shop in order to handle and inspect a product before buying it online at a lower price – is likely to increase. For those showroom owners, it brings with it the opportunity to capture the customer before they make the online purchase.
Overseas, this has given rise to the practice of reverse-showrooming, techniques that capture a customer before they walk out the door to complete the purchase online. Basically it’s a grown-up version of what Smiths City do with their ‘‘price promise’’, but tied to Amazon prices, along with a range of value-added features such as easy returns.
Likewise, the law is an advantage here. There is no doubt that a local retailer is required to honour the Consumer Guarantees Act and the Fair Trading Act. Whereas for an American company selling online and fulfilling through an Australian distribution centre, it’s anyone’s guess.
Best of all, New Zealand retailers have an ace up their sleeve that their Australian cousins don’t – time.
Amazon’s priority will be to deliver a stunning experience in online retail fulfilment on the east coast of Australia, presumably in time to mine the deep vein of Christmas purchasing.
Their first 90,000sqm retail operational centre is being set up in Dandenong, just south of Melbourne, with a focus on fulfilling in Melbourne, Sydney and Brisbane. Then the rest of the ‘‘lucky country’’, and likely then New Zealand.
In Asterix in Britain, Vitalstatistix notes ‘‘the sky may fall on your head tomorrow, but tomorrow never comes’’. Tomorrow will come for New Zealand, but chances are that local retailers will have a full year to fine-tune their response across product, price and promotion.
Meanwhile, the handful of Luddite retailers yet to move to omni-channel have a window to get cracking.
Mike ‘‘MOD’’ O’Donnell is an e-commerce manager and professional director. His Twitter handle is @modsta and he’s not lacking in Gaul. Interest disclosure – MODholds shares in Trade Me and Amazon.