Amazon starts slow – it’s a marathon

AMAZON Down Under hit the ground not so much running as flop, flop, flopping like a saturated tea towel and most definitely not an agile speedster.

On day one it completely failed to live up to both the hype and, more potently, the fear and loathing.

Sure, it offered a vast array of utterly bland, retail store-priced product, with some equally uninspiring discounts that would have prompted local retailers to ask: Is that all there is, Jeff?

Indeed, what does it say about the “offer” if a colleague can identify an Amazon-branded product cheaper in a clunky Aussie bricks and mortar store.

For those who use the real Amazon quite a lot – mostly for product that is simply not available Down Under – the local site ain’t going to change that anytime soon.

The product line looks like more of the same stuff that sent me to Amazon US in the first place and the pricing was decidedly unpersuasive.

In one of those “interesting” conjunctions, this coincided with good monthly retail figures – and local retail stocks defied the broader negative market tone and mostly closed higher.

To me, there are two big conflicting messages out of day one. One is somewhat comforting for local retailers and especially bricks and mortar ones. But the other is a very big warning.

The first message is that the US “Amazon model” doesn’t translate easily, far less seamlessly, Down Under. It ain’t automatically a bricks and mortar crusher.

The big wall Amazon hit is our cost structure. It couldn’t bring its low – especially wages – cost structure Down Under. At least on day one it was trying to compensate for that with a focused selective branded discounts tactic rather than the Aldi “all-store cheaper” version.

But that leads me to the very big warning. At the macro level, what matters – not just for Amazon and its competitors, but very importantly, suppliers – is not day one but day two and after.

Amazon’s here for the long game and it’s one where it chases revenues, not profits – both of which it has demonstrated in spades over decades in the US.

Then there’s size. Woolies and Wesfarmers have market cap between them of about $85 billion. Add Myer and DJs and it hardly changes. Add other big retailers and get over $100 billion.

Amazon is over

$700 billion. Now obviously, it’s not going to throw all that at Australia. But it has a lot of heft and the advantage of integrating its two offers – the local one and the US one – as it develops a feel for the quirks of the local market.

Further, arguably, it will start to get its Australian cost base down thanks to robotics, something the bricks and mortar retailers will find tough to match.

And then there’s the suppliers. On day one, judging by its pricing, Amazon played a pretty conventional game – writing conventional wholesale supply deals and then adding some sort of retail or Amazon margin.

That is not going to last. If you want to facilitate sales through Amazon, you are going to have to supply at a cheaper price and, over time, a grindingly cheaper price.

Amazon came, saw and didn’t conquer. But if I were in retail or selling into retail, I’d read that as a very big warning light, flashing fire-engine red.