Lessons in selling from the Amazon model
Mark Fowler, Head of Income at Hobson Wealth Partners Ltd., writes that NZ retail is under pressure from the latest newcomer.
Local retailers appear to be facing a growing threat from US e-commerce, particularly Amazon. What does this mean for key bricks and mortar retail categories in NZ?
Earlier this month, Amazon’s founder and CEO, Jeff Bezos, released his annual letter to shareholders which has been widely praised for its demonstration of the company’s obsession with customer satisfaction.
Bezos has built Amazon’s success on the concept of what he refers to as a Day 1 company – defined not just by this customercentric approach, but fast, effective decision making, an adoptive approach to emerging trends, and a refusal to let processes inhibit positive outcomes.
A Day 2 company is defined by Bezos as ‘‘stasis’’. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death.
It’s an effective strategy, and one Australasian companies could stand to learn a thing or two from, according to some experts.
Although the listed and industry feedback on the precise timing of entry for Amazon in Australia is currently unknown, the organisation has confirmed its intention to launch retail services into the region.
In light of recent retail sales forecasts to 2025, and assuming Amazon can reach 25 per cent of total online sales in Australia, Amazon could potentially build a A$14bn business in that region. That scenario requires a number of assumptions as to the size and breadth of the market, but a response to lower sales will be an increased focus on the cost base, including rents.
Case studies from the US and UK markets (where Amazon is more mature), show established retailers have reduced their number of stores, choosing to increase the footprint and focus on ‘flagship’ stores, as well as their own online offerings.
This might be a good strategy for larger retailers, but it may not work for the next tier down, where the ability to respond to declining sales and reduction in margins will be limited.