Does Amazon have an advantage if spending slows?

The group is also hopeful that platforms like Amazon will become more integrated into the everyday lives of Australians.

“They may have first shopped on Amazon to buy a last minute gift over the holidays, but now they realize we’re a great place to get school supplies and textbooks or maybe products for their upcoming summer vacation.” ‘ Menzies said.

It’s not clear whether Amazon’s overseas layoffs would affect Australian operations.

‘Where Amazon is really succeeding in the Australian market with a significant competitive advantage over many other pure plays is in supply chain footprint and technology.’

Emma Easton, Retail Oasis Strategist

It’s been just over five years since Amazon dipped its toe into the local market, ending years of speculation by local incumbents that the juggernaut would permanently disrupt Australia’s retail sector.

This widespread disruption did not come immediately. In the 12 months ended December 2017, Amazon generated just $17 million in revenue — a figure that had grown to $292 million in the 12 months ended December 2018.

But the company had always been committed to taking a long-term view of Australia, and during the years of the pandemic lockdown it became clear that momentum was building. The group’s most recent financial report, filed with the corporate regulator in February 2022, shows that revenue increased to $1.75 billion in 2021.

Amazon has expanded its next-day delivery offering in 2022.

Amazon has expanded its next-day delivery offering in 2022. Credit:Bloomberg

Many of the group’s longer-term investment projects have now come online, including its robotics fulfillment center in West Sydney, which has doubled its operational footprint.

Strategist at Retail Oasis Emma Easton said the company had become a bigger threat to local established businesses as online shopping boomed and Amazon rolled out unlimited free next-day delivery to its metro-area Prime members.

“Where Amazon is really succeeding in the Australian market with a significant competitive advantage over many other pure-play companies is in its supply chain footprint and technology,” she said.

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Over the past year, analysts who follow the retail sector have noted the traction Amazon has been gaining in online traffic, saying the company’s momentum makes it an emerging threat to other local brands, especially as spending slows.

Jarden retail analysts said last year that the group’s momentum in the first half of 2022 means Amazon is likely to overtake eBay as Australia’s number one retail site within the next 12 months.

“Of all transactional websites in Australia, Amazon has been the biggest climber this year, increasing its share many times over [more than] 40 percent from December to July,” Ben Gilbert said in a note to customers.

“We expect market commentary on Amazon’s competitive threat to evolve, particularly when it comes to expanding brand offerings in areas like electronics or building an automated distribution center in Melbourne.”

Meanwhile, Morgan Stanley analysts also noted that Amazon had picked up steam throughout 2022. While incumbents like JB Hi-Fi have risen well to the challenge, they believe Amazon’s rise will impact the entire industry and force its competitors to increase their investments in the digital world.

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“This year, [Amazon] doubled its distribution capacity and launched one-day delivery for members in Sydney and Melbourne in August. Additionally, Amazon also became a reseller of Apple in July 2021, which is a key brand in JB Hi-Fi’s sales mix,” Morgan Stanley’s equities team said in a report on consumer spending this month.

“While we don’t believe [JB Hi-Fi] will concede significant market share losses to Amazon, increased traction in key categories could lead JBH to increase investments in online operations or branch network modernization.”

Australians have maintained impressive spending momentum throughout 2022, despite rate hikes sending inflation spiking, and while online spending has spiked since the pandemic, the growth rate is slowing.

Some online-only operators have been caught up in sell-offs during this period: Electronics platform Kogan.com is down 51.4 percent over the past year, while online furniture retailer Temple & Webster is down 52 percent compared to 12 months ago.

Despite this, Australian online operators say they survived and thrived in Amazon’s early days and say their position as specialist retailers with deep product knowledge will position them well.

“Loyalty premium beauty shoppers often shop at specialty retailers where they can access a wide range of products and brands in one place,” said online retailer Adore Beauty CEO Marina Go last year.

“Within the premium beauty category, the competition is about experience and value-added benefits like samples and gifts with purchase. Adore Beauty meets these needs.”

https://www.smh.com.au/business/companies/competitive-threat-as-spending-slows-does-amazon-have-an-edge-20221207-p5c4bn.html?ref=rss&utm_medium=rss&utm_source=rss_business Does Amazon have an advantage if spending slows?

Brian Lowry

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