24 Oct 2017
They say bad news sells newspapers and if you believe the headlines the bad news is all about the business of selling - Australian retailing.
As US online retail giant Amazon gears up to open the doors on its Australia presence, a search of Australia’s mainstream finance pages reveals wall-to-wall coverage of the sector’s impending doom:
" Amazon could buy all listed Australian retailers with ‘walk-around money’ in just 23 months."
In mid-November Amazon’s Australian head Rocco Braeuniger said the group was poised to launch its Australian presence “really, really soon”. November 24 – the US’ ‘Black Friday’ shopping event – is mooted as likely date, according to analysts, although it is a deadline subject to considerable speculation.
Keen eyes have spotted electronic products – including computers and monitors – already popping up on the Amazon Australia website.
So is the end of bricks-and-mortar shopping in Australia nigh?
Contrary to the headlines, the real truth is we’re at another inflection point in the evolution of Australian retailing. As I wrote in October, it’s not totally unlike the ones we have seen before – but remember, history echoes, it doesn’t repeat.
It is true consumers are changing. These revolutions have indeed disrupted the status quo but a lot of it is more of the same. The substance may change but the fundamental structure is pretty similar.
The changing nature of consumers
It’s also true Amazon could buy all listed Australian retailers with ‘walk-around money’ in just 23 months. With a market capitalisation of almost $US550 billion it is the fourth-largest company on earth.
Of the 1.1 billion global websites Amazon has five of the top 100. It’s for this reason the headlines rack up - because what Amazon says and does moves the market.
Amazon at a glance
• A market cap of $US540 billion
• Revenue of $US150 billion
• 80 million Amazon Prime customers in the US
• 300 million active accounts globally
• Two million third-party resellers
• Ten times more logistic centres in the US than its largest competitor
• Net Promoter Score of 69. A score of 50 is considered excellent - 70 is world class
Amazon’s impact on the US market is significant. This can be seen in the financial impact in the wake of the announcement of Amazon acquiring US speciality retailer Whole Foods.
The $US14 billion deal sent shock waves through the $US800 billion US supermarket sector. The below graphic shows the jaw-dropping market cap shift of US retailers on the day of the announcement.
On the first day of Amazon moving into traditional retail, prices at Whole Foods fell as much as 43 per cent. If there is one truth to Amazon’s entry in the Australian retail market among all the inflammatory headlines, it is retail prices have further to fall.
Amazon’s strengths also highlight its opportunities. The company’s limited physical presence and lack of interaction leave it optimised for online and allows the business to get to scale fast.
Ultimately what Amazon will do is force existing retailers to change their operations in order to compete – but that is actually something the sector is well used to.
While Amazon will change the game, there’s plenty of life left in retail yet.
Mark Ganz is Director, Client Insights at ANZ
The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.
24 Oct 2017
19 Dec 2016