Despite not turning a profit for many years after its launch, Amazon has now hit its straps. It recently became the world’s eighth largest retailer and has signalled a massive growth phase with plans to hire over 100,000 people in the next 18 months. At the same time, many of its retailing rivals, such as Macy’s and Wal-Mart, are closing hundreds of physical stores and struggling with the shift to online retailing.
As part of this ambitious growth phase, Amazon looks set to establish a physical presence in Australia in late 2017.
Book industry people have long feared the prospect of Amazon setting up shop in Australia. There has been scuttlebutt and murmurings about its impending arrival for years now, and spirited debate about what impact its arrival would have on the local book industry.
The reality is that Amazon has already captured a significant slice of Australia’s bookselling market through its offshore online retail operations. In doing so, it has enjoyed favourable conditions by being exempt from Australia’s parallel importation laws (which compel Australian terrestrial booksellers to buy books from Australian publishers where rights are held locally) and our domestically-applied GST.
But now it looks like we’re actually going to see a physical Amazon presence in Australia in 2017. It will supposedly drop distribution centres into every state and have ‘physical stores’ on the ground. The intention is to ‘destroy the retail environment in Australia’ by offering huge discounts and targeting competitors’ margins with the mantra ‘your margin is our opportunity’—a ruthless approach and one which Amazon has become renowned for in recent times.
Whilst Amazon started its life as a book retailer, it has diversified significantly and now operates principally as a general merchandiser, as well as operating a number of non-retail technology businesses. Perhaps its most successful ‘pivot’ has been into cloud hosting, through its Amazon Web Services (AWS) arm. Amazon has been operating AWS data centres in Australia since 2012, but its 2017 push will be a whole lot more visible to the Australian consumer.
Amazon’s 2017 foray into Australia will be a general merchandise play, coupled with its relatively new grocery offering, ‘Amazon Fresh’. Indeed, Amazon has delayed its launch into Australia by six months so that it can offer ‘Amazon Fresh’ from the outset.
Amazon’s physical presence will likely comprise many small pop-up stores in big shopping centres and in popular retail strips. These stores will sell Amazon’s technology offerings – Prime, Kindle, Fire, Alexa, etc – and serve as a visible brand presence that drives traffic back to the Amazon website.The stores may also be used as pick-up locations for goods ordered online.
In the grocery space, Amazon will go up against Coles and Woolworths with their existing—albeit relatively immature—home delivery networks. The delivery of groceries will also provide cross-sell opportunities enabling Amazon to supply general merchandise goods via the same delivery network.
I don’t think we’re likely to see standalone Amazon Books stores in Australia, at least not yet. Amazon have opened several of these stores in the US.
Whilst books won’t be at the forefront of the Amazon push into Australia, there won’t be any great relief for booksellers. For many, Amazon is still principally a book retailer and its physical presence in this market (and the ensuing fanfare when it opens) will undoubtedly result in the capture of additional market share at the expense of local sellers.
Logistics has always been the bane of local retailers – with its massive landmass, small population and remote location, Australia has always been an expensive market to supply. Amazon’s logistical might will bring cost advantages that will eat further into the already-thin margins of local sellers.