Amazon’s softly, softly tactics in Oz means impact gradual
By 2029 revenue from the Australian market is expected to top $24 billion
Amazon has been quietly operating in Australia for almost two years — so quietly that its launch Downunder has been largely perceived as unsuccessful.
But the world’s largest internet company does not do business by halves, and its “soft launch” is strategic, a report by global financial services firm Morningstar says.
When Amazon launched its local domain across the Tasman, analysts watching its expansion closely were surprised by its limited catalogue of product and its expected lack of impact on local retailers.
Morningstar’s Consumer Observer report says Australia will “become a meaningful contributor” to the e-commerce giant’s top-line growth in the next 10 years. It estimates revenue of about A$23 billion ($24.6b) will come from the Australian market alone by 2029.
“We believe Amazon’s playbook in the region will mirror international geographies, with expedited shipping spurring Prime membership growth and Amazon’s content offerings then unlocking future membership subscription/monetisation opportunities,” the report outlined.
Morningstar expects Australasian shoppers will come to rely on the e-commerce giant for close to everything, driven by Amazon Prime subscriptions, just as shoppers in the United States and Britain have come to do in recent years.
It forecasts that Amazon’s international online retail margins will “turn positive in 2021”, and that “consumers will continue to utilise Amazon”, even during a recessionary environment, as order delivery times continue to improve as the company expands its distribution network.
Morningstar estimates Amazon’s online retail businesses are worth US$450b ($715b), and will continue to outperform rivals in years to come.
Morningstar equity analyst Johannes Faul, based in Australia, said Amazon’s launch there had had less effect than “initially feared” but would still have significant impacts, such as store closures, on the sector.
“We don’t predict an Australian “retail Armageddon”, but rather a slow demise of the traditional retail model based solely on physical stores, especially in categories with relatively high online penetration,” Faul told the Herald.
“We expect Amazon to gradually build up its customer base over the next decade. In 2029, we estimate close to 30 per cent of all Australian online retail sales to be transacted on Amazon’s platform, up from an estimated 3 per cent in fiscal 2019.
“This compares with other international markets such as Europe, Japan and India where Amazon has at least 20 per cent share of the e-commerce market today.”
Faul said Amazon Australia would hit brick-and-mortar retailers operating in consolidated markets selling product categories with high online penetration, such as department stores, the hardest. “We expect significant store closures as a result of a shrinking addressable market.”
Kiwi analysts believe it is only a matter of time before Amazon launches a local domain in New Zealand. Whether it will set up physical fulfilment centres here, as it has in Melbourne and Sydney, is another matter up for debate.
Amazon could switch on operations here next year, retail marketing expert Ben Goodale said, though adding that it was not likely.
Chris Wilkinson, managing director of First Retail Group, said Amazon was currently focused on strengthening existing markets.
“Amazon in Australasia is a sleeping giant from a consumer standpoint,” he said. “We believe they are focusing on further strengthening existing markets where they can leverage existing or scaling infrastructure — such as the UK and Europe.
“They’ll also have issues like Brexit and the trade wars that will be concerning in their biggest markets — so Australasia will be well down the priority list for [their] attention.”
Wilkinson said an Amazon launch in New Zealand still remained a question of when and how, not if.
Goodale said he did not believe Amazon would disrupt retail sectors in Australasia to the same extent it had in the US and Britain, at least not in the short to medium term.