The reports have been coming thick and fast through 2016 and now 2017 about the eminent (reportedly) arrival of Amazon in Australia. Will it be as bad as some prophecies predict, or is it equally an opportunity for local businesses?
There are at least three significant areas of impact that Amazon Australia are likely to have in the domestic retail market. While all combined may appear daunting to Australian Retailers the lessons that have been ignored over recent years in other industries can still be harnessed to offset what is coming.
While it may not be an ideal situation for retailers in Australia to have a behemoth like Amazon land on our doorsteps, there are logical reasons why they are expected to make a significant entry here and ignoring this reality won't help local businesses.
Australia can be a hard market for international companies when they underestimate the geographical and logistical challenges and the smaller numbers of people. Not all successful international brands that come here excel. Amazon is a different case study for several reasons and their entry into the market will be entirely different.
Amazon coming to Australia isn't simply a new e-commerce play and thinking of it as an e-commerce model only lessens the value of any evaluation and discussion on what is likely to happen here.
We should expect that they will bring their dynamic business models and some new ideas, they are currently trialling overseas, which will see changes across many different areas of business in Australia. That isn’t all bad news, as it will open up opportunities for other businesses.
There are three significant areas to pay attention to when reviewing the likely Amazon impact and comparing it to how other companies have entered the market:
- How quickly they can create an impact.
- How they are positioned to influence the market.
- Innovation and what it means to Australian retailers.
1. How quickly will Amazon impact the local market and build a significant customer base?
Fact: They already have a Customer Base
Amazon is already here, and has been for many years; they just aren’t onshore yet.
When retail brands like Zara enter the market, they typically launch their beachhead store and learn from it before expanding their commitment. If things don't go well, they might reconsider what their intentions are. Some start with online-only offerings and use seasonal bulk deliveries to grab a footing.
Amazon doesn’t just have a beachhead they have their own suburbs and towns.
The estimated sales by Amazon to Australian customers is currently said to be between $500 – 700 million per annum, according to Citigroup.
While that is a tiny fraction of the $220+ billion retail sector in Australia, it is much more than a typical beachhead approach. They will have real sales and significant local cash flow from day one through existing customers.
Some initial projections estimate annual domestic sales of $3-4 billion within five years. These were made without exact knowledge of what offers Amazon will bring to Australia, so are pure guesstimates at this point. Imagine if that was double!
That’s a very different market impact than someone with 5-8 small retail stores spread across one state or the entire country.
Amazon will easily leverage these existing customers. They have long-term relationships with these people that span up to or over a decade. Over that time they have provided exceptional value and service when compared to local offerings.
Think how they silently stole market share from bookstores in Australia. Still today local booksellers offer books from overseas slower and more expensive than Amazon and their competitors. Not everyone learns the lessons.
It isn’t always a price issue either, in many cases, the service and delivery are simply better. People like that. They value it. If I can pay the same price but receive the product three weeks earlier than a local offer, why would I wait?
The old quote that it’s much easier to retain an existing customer than get a new one will be true for them. Amazon customers don’t see themselves as ebook or book customers they see themselves as Amazon customers. So when this trusted brand offers an extended service, the uptake will be high and rapid.
That is the first significant threat to local business. When the customer can buy many different products from the one supplier that they trust rather than ten different local suppliers they have ambivalent relationships with it presents a MAJOR threat
The numbers themselves might not seem particularly threatening; however, the product breadth and industry reach Amazon is likely to bring means those sales are going to be drawn directly from those who have been the least adaptive and customer friendly firms, our big national brands.
Data, knowledge and smart technology.
If nothing else Amazon is a data company and they know how to communicate effectively, in the right frequency and how to adapt their message to generate the most sales impact. With an existing audience of brand advocates, influence and immersion will be simple. It’s already done.
Amazon doesn’t have to talk about increasing levels of engagement through multiple channels and other marketing speak. They have very engaged customers who expect and get a lot back from them in return.
Comparatively, some of our big retailers are more of a real estate or franchise business, so their focus is on maximising those investments and less about how smart they are with information about you.
Think about the highly targeted offers Amazon makes to you verse retailers you have used for a decade. Most locally based retailers are struggling to create meaningful two-way relationships with their customers in a way that empowers both parties. That, in my opinion, is a focus problem.
How many products have you bought from an electronics or white goods retailer in Australia that looks up your customer details when you purchase but does nothing with that information? Amazon knows the power of smart data usage.
One would hazard a guess their spend on algorithms is more than many local companies entire marketing and service budget.
We’ve been Primed!
Anyone that has been an existing customer of Amazon for any period knows about the many different ways they offer products and services to their US and UK customers.
We look on with envy at what we aren’t being provided with locally and wait with baited breath for a time when we can access these offers. Already Amazon Prime is here for online content with so much more likely shortly.
Ready, set, Go!
2. How Amazon will be able to influence the market.
Amazon has a long history developing its business models, entering new markets and territories and more importantly solving problems customers have. They play both a traditional bricks and mortar retail game and an online ecommerce game. These are some of the areas of their expertise and skills that will influence our local market.
- Big Data
- Customer Focus
Capital. Amazon likes to hold cash and to reinvest. This allows it to proceed aggressively into areas and to be fast moving. Nothing stalls efforts more than a lack of cash flow and capital. This won’t be a problem for Amazon.
Big Data. Amazon knows data; they know about their customers, and they spend a lot of time and money building algorithms that make their business better. They know what you want, and they will work out how to deliver it to you. They aren’t caught up in talking about Big Data they simply are a Big Data company that helps put products and services into people's hands. Your Bank with whom you have made the largest possible purchase can't even do accurate personalised mail to you and most retailers struggle with sophisticated personalisation.
Logistics. In Australia, we suffer the cost of lazy logistics and poor delivery models. Amazon won't accept that; they will implement shipping and logistics options into Australia that could affect more than just retailers it may well affect other logistics companies as well. Of course, this will create new opportunities as well.
Price. Amazon has already been quoted as having a highly aggressive approach to Australian pricing, “Your margin is our opportunity”. While price isn't everything most Australians know they have been getting the short straw as far as pricing for quite some time.
Momentum. When Amazon opens the door, they will be ready to go on day one and will deliver on their promise. With data, capital, experience and logistics, they will create momentum that will cause headaches for local competitors that aren’t currently being nimble enough.
Innovation. See below.
Customer Focus. I am sure Amazon has teams of people analysing customer experience, journeys and many other elements of better business process and marketing. Their difference is that they create transformations across their entire business not just a button colour or a theoretical journey pathway. Their business is about offering a better deal, product and method to their customers. Yes, they have to make profits, but they put their customers first when they create new products or services. It's not lip service; they execute on it. Consistently.
3. Amazon is a relentless innovator.
Without covering all the many different internal processes and methodologies that Amazon uses to be an innovative company one key to their success has been the continual reinvestment in innovation in their business to provide better service.
It is in this area that I believe the most pain will be felt by local businesses.
- Amazon is the company that patented the 1click order process.
- Amazon has drone delivery and robotic warehousing.
- Amazon charges membership so you can get faster cheaper delivery etc.
Amazon continues to offer innovative services including Amazon fulfilment, so other businesses use their logistics to get products into customer’s hands more easily.
Amazon Prime has already arrived in a small way and will no doubt open up more when their new offerings are put into the local market. This isn’t a loyalty card or basic rewards program; this is a paid membership that customers willingly pay to get better service and a raft of other options.
Amazon will hit obstacles in Australia without a doubt.
The difference will be that they will solve them so they can offer Australian consumers a better offering. Over the next 5-10 years, we will see things done in Australia that aren't done elsewhere as they adapt and learn about the local market and apply their skills and data and capital to solving those issues.
This whole of business innovation is the main MAJOR threat.
It does also provide some options for countering them.
In Australia, we tend to think we are a tech savvy market and that we are innovative and forward thinking. I don't believe that to be true. Yes, we do have some high uptake numbers on certain technologies, but anyone that has spent much time in business management circles understands how limited and conservative many business leaders are.
Australian companies invest as little as they can in forward thinking processes and technologies, and focus more in defensive strategies of cutting costs as the main method to ensure margins stick in narrow thresholds.
Our culture of living by profit reporting cycles and being dictated to by investors encourages slow moving leadership, which is safe and stable. Unfortunately when a true innovator comes along safe and stable are your enemy and you don't find anyone willing to make radical long term changes.
While e-commerce in Australia has a long way to go I don't think this is simply an online problem it hits at the heart of businesses in general.
When you review the poor experiences, both online and in bricks and mortar stores, that customer must endure in Australia it's difficult to imagine any effort is being put into useful innovation. It's almost as if customers should be thankful to get anything at all.
Apple set standards in customer service that others mock and point to as unsustainable. Their floor staff numbers are higher than other comparable retailers in many stores, yet somehow they are still there and still wowing customers with the way you can buy from them as well as their after sales service.
Comparatively, Telstra stores appear to have plucked just a couple of the Apple Store concepts but only managed to create more bottlenecks, frustrations and harder ways to buy products. Amazon and Apple won't accept that type of result whereas Australian retailers expect customers to suck it up.
What are Australian Retailers Doing?
Can you name the most recent and significant retail innovation in Australia? Can you recall something game changing from an Australian Company?
No doubt it’s mostly things like:
- A pop-up store
- Some reworked sale
- A new app of offers
- A rebrand
- A new website
- An updated loyalty program or rewards card
- 600 months interest-free
- Before pay, after pay, pay some time later
- Subscribe to more of our content marketing programs so we can send you more social/email/mail
- or….. it's more behind the scenes margin management which isn't passed on to the consumer.
That’s not the innovation needed. A new product or a new idea in the singularity isn't the sort of change that will be necessary to stay ahead in the coming years.
Yes, you can define Innovation as a new product or service. The type of innovation that Amazon brings and others like them is whole of business innovation.
Some banks and businesses have created new individual products (apps etc.) that offer better and more customer friendly methods of handling every day tasks e.g. splitting payments and other electronic offerings.
Unfortunately, the innovation seems to stall there. The rest of their processes let down the innovations they create in one area because the organisations themselves aren't able to drive these across the entire business.
Leadership Lacking Innovation.
In many instances the lack of vision and knowledge at the highest level is the cause of the lack of progress.
One of my favourite business and coaching expressions is:
The Fish stinks from the head down!
Without beating around the bush if our largest and most well-placed retailers aren't pushing significant innovation and change on the market it comes from the top down.
I have heard conversations about how big Australian retailers have been preparing for Amazon for years. What strikes me odd about that line of commentary and thinking is how defensive and passive it appears.
Let's just wait until after the invasion to deploy our troops, and we can minimise how much of a land grab they get. While I am not the most knowledgeable military historian, I can't recall that ever being seen as a proactive and fruitful starting strategy.
Why haven't real innovations been rolled out and erosion of some of Amazon's differentiation already started? Is it the general arrogance or slowness of the Australian business sector or that our most senior leaders are still living in a world of denial.
Are we still drinking our own bathwater about how great we are, how well our economy is going and how well we have weathered the recent economic storms?
Or more likely the approach has been about trying to fix margins now before sales get eaten in the future. That’s a defensive strategy that once again wouldn’t be about the customer.
None of these options end up serving the person who will ultimately make the decision about who to but from. The customer.
It’s hard to build loyalty and advocacy if everything you do is about you.
Why haven’t they solved logistics before now?
Any of our big brand local retailers could have addressed this issue before now. Whether it be the JB Hi-Fi, Harvey Norman, SuperCheap or other brands across the country, none have drawn such an aggressive line in the sand as to be ‘the innovator’ in Australia.
This is hard leadership; it's why there are only a few Real Leaders in World business, those like Bezos, Branson and others. Each has an innate ability and willingness to sell the long-term vision, to take their boards and shareholders on a long play, and to make sure everyone understands where the future is.
Clayton Christensen in his book The Innovators Dilemma discusses the areas of threat and opportunity for both incumbent market leaders as well as new entry companies.
Our big brands and businesses need to find even more ways to change their methods of innovation and not get caught in the traps of incumbency. It isn’t always the role or possible for a new entrant or startup to make the actual changes to such a large section of industry.
Change in our retail sectors needs to come from incumbents who have the potential resources and needs to drive such change before they are kicked out of their own playground by the new bully.
The rules have been changing in small pieces but the overall larger picture is now quite different, and you can't just snip around the edges.
New stores, different button colours on your website, buzz words and journey mapping are all small tactical pieces that don’t fix the real underlying issues.
Where to from here?
If the key differentiators that Amazon will bring are based on their customers, logistics and competitive product positioning, then there is a danger of only focusing on this effect to your business.
At present, no one knows the exact time or offer they will launch with. That means it’s time to focus less on Amazon and spend more time improving what you already have and becoming better business operators.
Australian Retailers and businesses need to start to address areas in their business holding them back from being better customer-focused companies.
Changes that will be required deep inside companies:
- Learning how to foster and develop whole of business innovation
- Leadership, promoting those who can drive the right changes
- Buy into the information economy proactively not just giving it lip service
- Moving from tactical floundering to strategic execution
- Becoming more nimble (mentally as much as physically)
- Returning to a Customer First model
- Start experiencing your business like a customer, you'll be amazed what you find
The innovation required will need to start from changing the entire focus of many businesses and bringing about cultural changes that will lead to significant shifts in how we run our businesses.
Putting Customers First has pretty much always been the key to any successful business, even if it doesn’t appear that way. What is new is how we implement it. We have new tools and methods, different ways to attack problems and more capital available than ever before.
Some Boards and Senior Executives might not have the capability to buy into this, and should be replaced. Many do and need to learn that the old ways aren't coming back and only those willing to continue to learn and adapt will survive.
If they are the custodians of the wealth of the shareholders, then they need to assist in helping investors also understand what is required and what game they are playing. Some businesses only need to play the short game, but to last in this environment, you need a clear and robust long game mixed with some short plays along the way.
Internal teams need to be invested in. Instead of losing very talented people off-shore or to start-ups, create environments where they can help build better businesses. Anyone that's worked in a start-up or smaller enterprise will love having access to real resources and they need to be attracted and kept so that knowledge can be grown and shared.
While our talent pool is smaller and many don’t have the depth of skills achieved in bigger overseas markets, it’s the leader's role to ensure they are taught and educated and given chances to develop what is needed for each business.
One of the real keys to a Customer First approach is that it, in reality, requires you to put your Team First too. The upside down organisation wins when your staff retention is high, your knowledge and skills training is within and shows through everything you do.
Change up the raft of rules that are there to protect profits and put in place cultures and methods that look after the customer. Lose some money learning how then figure out how to do that profitably.
- Yes, fix your web offerings keep working on better tactics.
- Yes, fix your stores find ways to remove bottlenecks, poor service.
- Start negotiating harder better deals with your suppliers and providers, and make sure you can compete.
- Yes invest more in marketing on and offline, but make it about the customer.
- Yes, start running more workshops and hackathons to understand your internal and external problems. More importantly, do it to know your customers desires better.
Overall it’s not just a thing or a magic bullet you need to fix.
You need to fix why you allowed the Invasion in the first place.
Why did you and your competitors play the short game against each other rather than building something different or better?
Why isn’t your customer service the best it can be?
Why is your online offering at best just like everyone else’s?
Sound like too much to do? It isn’t really. It’s about moving to a customer focused business and naturally improving everything you do from the inside out. Take it one bite at a time and you'll make changes, just chew faster!
It will take effort, whether you are a big or small business. The reality is that you don’t have a choice but to improve unless you are happy to lose business.
There are many options and many ways to handle the change needed, and it's easier, quicker and cheaper than ever before to do things we could have only imagined ten years ago.
That's what Ireckon. I'd love to hear your thoughts about what changes will be required for our local businesses to thrive and other threats you think companies like Amazon will bring to the domestic market in the coming years.
Related articles and research sources:
- Amazon Will Launch Its Own Supermarkets and Online Shopping in Australia (msn)
- Amazon trademarks reveal Australian ambitions (afr)
- Formidable Amazon entry to Australia would improve etail across board says retailers (mumbrella)
- Amazon to destroy Aussie retail (news)
- Amazon Australia expansion set to shake up JB Hi-Fi and Harvey Norman (smh)
- Amazon: The $340b tech giant stalking Australia (smh)