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Amazon to create the biggest function centre in a decade

Amazon threatens to create the biggest retail disruption in Australia in a generation by engaging with consumers in ways that traditional retailers will struggle to emulate, according to Bain & Co.

“The Australian consumer is very Amazon ready,” says Bain & Co partner Yngve Andresen, who led recent research into Amazon’s likely impact on Australian retailing.

Amazon threatens to create the biggest retail disruption in Australia in a generation, says Bain & Co.
Amazon threatens to create the biggest retail disruption in Australia in a generation, says Bain & Co. Photo: AP

“Ninety per cent of customers say they’re very happy to have Amazon coming and are willing to try them. I believe it’s a once in a generation retail disruption.

“They’re fundamentally changing how people are shopping … in the US 90 per cent of consumers use Amazon to price check and even Australian consumers are already using Amazon to price check.”

The management consulting firm believes Amazon is likely to garner sales of between $3 billion and $4 billion in three years and $8 billion and $10 billion in five years – double the forecasts in recent broker reports.

Bain & Co also believes Amazon will capture the lion’s share of growth in online retailing, as it has in the US, where it accounted for an estimated 53 per cent of e-commerce growth in 2016.

Mr Andresen says the biggest threat to Australian retailers is not Amazon’s size and market share but its “customer obsession” and its ability to engage with consumers almost 24 hours a day through an ecosystem which includes fast and free delivery through Prime and Prime Now, connected devices such as Echo and Alexa and even daily fashion advice through its Look app.

“Dollars and shares don’t matter – it’s more about the ecosystem and how that will disrupt the Australian market,” Mr Andresen said.

“They spent $US16 billion last year on research and development to feed this system of innovation – they’re engaging with customers in a way we’ve never seen any retailer do, at least at that scale.”

Mr Andresen says Amazon’s entry later this year or next year does not spell the beginning of the end for bricks and mortar retailers.

However, retailers need to assume that Amazon will succeed and develop strategies to minimise its impact – not by copying Amazon’s model but by offering customers what Amazon cannot.

“You see winners and losers from any disruption in history – so it will be with Amazon,” he said.

Retailers need to leverage their existing assets, including bricks and mortar stores, loyalty programs and customer data to engage directly with shoppers and offer them unique services and experiences.

“Know and protect your customers – Amazon is great at collecting all sorts of data and using that to offer you things you haven’t even thought you needed,” he said.

Retailers also need to get their e-commerce operations in order – upgrading clunky websites and using a combination of click and collect, established logistics providers and Uber-like start-ups to deliver orders to customers as quickly and as cheaply as possible.

Retailers needed to become even more focused on productivity to compete on price and minimise the impact of operating deleverage, and consider developing a private label strategy to differentiate their products from Amazon, protect margins and sell products at competitive price points.

“You probably don’t want to price match any product with Amazon but you should try to be price competitive on the products that matter most to customers in whatever category you’re selling,” he said.

Retailers and consumer goods companies also needed to decide whether to set up shop on Amazon Marketplace or sell to Amazon through amazon.com.au.

“If you’re bigger and more sophisticated you’re better off on the Amazon platform – you get better ranking on websites but you give up some control over pricing,” Mr Andresen said

Posted on June 13, 2017

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