20- year winning streak rolls on
holly. ryan@ nzherald. co. nz mazon’s shift one step closer to New Zealand is eliciting mixed emotions from the retail community, with some seeing it as an opportunity and others preparing for battle.
The online giant confirmed one of the worst- kept secrets in retail last week, saying it was planning to open shop in Australia.
The company i s promising cheaper prices, faster delivery times and access to a greater range of products, including groceries. Although it has yet to announce a launch date, media speculation says it could be operating by the end of next year.
Retailers across the ditch have been gearing up for the arrival of the company for months, with analysts and business leaders alike warning the behemoth could take a significant chunk of business.
Amazon already has A$ 1 billion ($ 1.08b) in sales in Australia by shipping from overseas, according to analysis by Morgan Stanley, although this is a small proportion of the estimated A$ 300b total annual retail sales in the country.
In March last year Richard Goyder, managing director of Wesfarmers — which owns the likes of Bunnings, Kmart and Coles among others — grimly predicted Amazon’s arrival in Australia would “eat all our [ retailers’] breakfasts, lunches and dinners”.
Amazon in the United States has already had a significant impact on bricks and mortar retailing, with the company now accounting for 50c in every dollar spent via e- commerce.
Although consumers in New Zealand can already shop on the online platform, the opening of warehouses in Australia will make the company more attractive in terms of delivery times and product range.
According to commentators, Kiwi businesses need to be prepared.
“Amazon’s imminent push into this market means retailers here must move quickly to strengthen their online presence and performance while establishing key differentiators that can place them in a defensible position,” says First Retail managing director Chris Wilkinson.
“Amazon will play in every space from high- end designer through to commodity goods.
“Local retailers don’t have the scale to achieve the buying prices [ and] economy of distribution that many offshore mega- traders do.”
Analysts say big box retailers such as The Warehouse, Noel Leeming and Farmers are likely to be most affected, as well as those without a good online presence.
Warehouse Group chief executive Nick Grayston has been saying since he started at the company in December that Amazon is its main competitor, adding previously that the company’s arrival in New Zealand is a matter of “when not if ”.
“We have been preparing for this eventuality, having seen the impact Amazon has had on other local retailers in other countries,” he said this week.
“We know it raises the stakes for retailers in New Zealand.
“Their arrival is not a surprise — we have mapped out our capabilities against Amazon’s and are preparing for the challenge.”
Wilkinson says the arrival raises the bar for retailers who will need to focus on providing loyalty plans, data analytics and unique in- store experiences and propositions to retain customers and protect sales.
As with all e- commerce stores, Amazon also offers shopping opportunities 24/ 7 compared with the limited operating hours of bricks and mortar shops.
Amazon is likely to impact e- tailers as well, with many small businesses selling through platforms such as Trade Me.
Stuart McLean, Trade Me head of marketplace, says although the company views Amazon as a very different business model, it i s watching with interest.
“We’d be silly if we didn’t keep an eye on competitors that enter the market and obviously we recognise the user base and the size of the Seattle- based behemoth,” McLean said.
“We think the best thing for us to do i s stick to what we’re good at — making it easy for our members to buy and sell onsite.
“As an online marketplace we aren’t a competitor to small business — we provide a platform for hundreds of New Zealand small businesses to sell their wares to the country.”
The arrival is not all bad news for retailers, however.
Ben Goodale, managing director at marketing and customerrelationship agency JustOne, says Amazon provides a marketplace for goods which otherwise may struggle for exposure and distribution.
“It’s good news for niche retailers Amazon. com’s 20- year streak of double- digit revenue growth shows no sign of slowing this year, helped by an influx of online shoppers who are abandoning stores, and new business for its cloud computing division.
The company topped profit and revenue estimates in the first quarter and projected sales that may beat projections in the current period, reinforcing its message to investors that big spending on warehouses, movies and devices are all part of a winning formula.
“Amazon appears to be firing on all cylinders,” said Colin Sebastian, an analyst at Robert W. Baird & Co.
“The core e- commerce segment growth remains very healthy, Amazon Web Services was fairly stable even with the recent price and product innovators, giving them a bigger market,” Goodale says.
“From an Australian point of view, it may encourage some Kiwi firms to register and trade via Amazon sooner rather than later, giving them access to the Australian market.”
The vice- president for Amazon Marketplace, Peter Faricy, said third party sales through the platform were reductions, and growth in subscription services and advertising is robust, starting to move the needle, and helping to augment profitability.”
Shares gained as much as 5.1 per cent in extended trading after closing yesterday at a record US$ 918.76 in New York. The stock has jumped 23 per cent this year.
Amazon boss Jeff Bezos added US$ 3.3 billion ($ 4.8b) to his fortune yesterday in after- hours trading of the e- commerce giant’s shares.
Bezos saw his fortune surpass US$ 80b for the first time, according to the Bloomberg Billionaires Index. The move puts him less than US$ 5b away from becoming the world’s richest person.
The world’s largest online retailer is dominating e- commerce in the US with its US$ 99- a- year “record- breaking” for 2016, although he would not disclose figures.
More than two million merchants sell through the Marketplace, which was launched in 2000, with the company taking a cut of any sales but handling storage and shipping of merchandise.
It’s not just small businesses using the platform. Larger companies such Amazon Prime subscription, which includes delivery discounts, music and video streaming and photo storage that keep shoppers engaged with the website.
First- quarter sales increased 23 per cent to US$ 35.7b. Net income was US$ 724 million, or US$ 1.48 a share, the company said.
Shipping expenses, a major cost for Amazon, increased by 30 per cent, the slowest pace in at least six quarters, Olson said. Still, spending remains an investor concern.
Operating expenses rose 24 per cent to US$ 34.7b in the quarter.
“They earned US$ 724m on US$ 35.7b in sales, or a whopping 2 per cent,” said Michael Pachter, analyst at Wedbush Securities. “Sales grew by US$ 6.6b and net income grew by US$ 200m. They’re playing mind games with us.” as Debenhams and Clarks are also making use of the opportunity.
Amazon said active sellers using the service rose more than 70 per cent last year, with the company more than doubling the items it delivered for third- party sellers, climbing to more than 2 billion for the year.
Online shopping spree Cyber Monday is a good indication of the growing popularity of third- party sellers using Amazon to market their goods. Over the four- day period last year, more than 28 million items were ordered from third- party sellers on the site compared with 23 million the previous year.
According to Amazon data, thirdparty sellers now make up as much as 50 per cent of all unit sales on Amazon — a figure which has been growing by about 4 per cent a year and i s expected to continue increasing.
Dylan Bland, general manager at online retailer Mighty Ape, says the company will be signing up to Amazon’s marketplace on the first day it becomes available for them — an opportunity he hopes will grow its Australian sales.
“They are opening applications for stores to be part of their marketplace so we will be getting our products on there for the Australian market, and we expect our sales will grow in Australia as a result of that,” Bland said.
“Currently about 20 per cent of our sales are through Australia and 80 per cent in New Zealand so we see Amazon coming as an opportunity for us and we think smaller stores should be jumping on to that opportunity too.”
It is 20 years since Amazon went public with an initial public offering ( IPO) price of US$ 18 a share — its stock closed yesterday at a record US$ 918.76, giving it a market capitalisation of US$ 439.8 billion.
From a consumer perspective, the arrival of Amazon is a positive, with a greater product range and increased competition likely to drive down prices.
Amazon has typically entered a new market with a product offering of about 5 million items.
The opening of offices and shipping centres in Australia will significantly cut delivery times and increase product availability for Kiwi shoppers.
First Retail’s Wilkinson says Amazon’s arrival in Australasia could also give access to products previously not sold in the region.
“Amazon are likely to develop conduits to products and brands that may not have been easily available in these parts of the world,” he says.
In the past, Amazon has often refused billing addresses or credit cards from Australia or New Zealand for some products.
Although several third parties have developed solutions to deal with this, having Amazon in Australasia will end these restrictions.
“Workaround solutions, such as NZ Post’s MyShop, had been solutions for shoppers — but only those that were most determined,” Wilkinson said.
“Freeing up access, availability and expediting product supply is likely to be one of the key benefits for consumers Down Under.”
As the largest e- commerce site in the world, Amazon’s purchasing power means it can also offer products at a significantly discounted price for consumers.
The company has yet to announce an official opening date as well as the city it will be launching from, but without doubt, the retail landscape is set to change when it does.