INNOVATION

Amazon: Everything You Need To Know About Its Plans For Australia

It has the potential to completely reshape the way you shop.

22/08/2017 2:15 PM AEST | Updated 24/08/2017 9:18 AM AEST
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Amazon is expected to be operational in Australia by the end of 2018.

Amazon has made landfall in Australia.

The e-commerce behemoth this month announced it had secured the lease of a former Bunnings Warehouse space in outer Melbourne, in what will likely become the first of many "fulfillment centres" in Australia.

It has also appointed a country manager, top German director, Rocco Braeuniger, to lead its assault on Australian retail.

Amazon's decision to roll out a full retail presence in Australia is among the most talked-about business ventures in the Australian market in decades. In April, just four lines from company executives was all it took to send economists, retailers and the entire Australian stock market into a spin as months of rumours about its plans for Australia were confirmed.

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Amazon has seen a meteoric rise since it started out as an online book retailer in 1995.

Some of the predictions were glowing; many sent dire warnings to existing retailers. If the speculation is to be believed, no existing Australian business will be left untouched by the so-called "country killer".

But what will of all this mean for us, the consumers?

A Goliath Of Retail -- And Beyond

Amazon began as an online book retailer in 1995. In those early days, a bell would ring in the office every time someone made a purchase and everyone would gather around to see if they knew the customer. Within weeks, the ringing became so incessant they had to switch it off.

One of the only start-ups to emerge still standing from the dot-com bust of 2000, the company has become the largest retailer in the world.

Just last month, its market value surpassed $US500 billion. Only Apple, Microsoft and Google's parent company Alphabet are worth more.

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In 1995, Amazon founder and CEO Jeff Bezos ran Amazon out of his garage. He's now one of the three richest men in the world.

Recently, founder Jeff Bezos briefly deposed Microsoft founder Bill Gates as the richest man in the world with a net worth of around $US90 billion ($AUS113 billion).

Today, the company has expanded well beyond e-commerce.

Not only does it offer every kind of consumable imaginable via its online marketplaces, it's diverged into delivery services, fresh food, banking, television streaming and checkout-free grocery stores. It is in fierce competition with Google over voice controlled technology with its home assistant, Alexa, and now looks set to take on Ticketmaster for the sale of event tickets.

In America, almost half (43 percent) of online sales now go through Amazon -- a figure which continues to grow. It's also the country's eighth largest employer.

In Germany and the United Kingdom, Amazon now sells more non-perishable goods than any other retailer.

By any measure, it's short history has been outrageously successful.

Company Spin Or Spine?

When it comes to Amazon's arrival in Australia, existing retailers appear divided between fear and complacency.

Claims about Amazon's impact have ranged from the grandiose -- that it will herald a "retail revolution", destroying shopping as we know it -- to the painfully specific, like that it will wipe 16 percent off discretionary retailers' earnings and 14 percent from grocery stores' within three to five years.

The managing director of Coles' owner Wesfarmers, Richard Goyder, warned as long ago as March 2016 that Amazon will "eat all our breakfasts, lunches and dinners" unless Australian retailers become more innovative and barriers to competition are removed.

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Amazon is in the process of setting up one of its enormous 'fulfillment centres' in Melbourne. Last week, the company announced it had secured the lease for a 24,000 square metre warehouse in the outer Melbourne suburb of Dandenong.

The first taste of that came in June, when Wesfarmers, Woolworth and independent wholesaler Metcash (which supplies IGA) all sold down following the announcement that Amazon was purchasing US grocery chain Whole Foods for $US13.7 billion.

But not everyone is buying the predictions of market destruction.

Retail billionaire Gerry Harvey said Amazon's launch would take much longer than predicted, saying the logistics of securing land and setting up warehouses means if it was fully operational "within three years, that's very quick".

With a lease on an existing warehouse already secured, it appears those doubts were ill-founded.

But outgoing Metcash boss Ian Morrice has also played down fears of a swift takeover by Amazon, saying it was too early to know if Amazon was even going to offer fresh produce in Australia.

So are the claims of a "retail revolution" accurate?

We put it to the experts. Their response? A resounding 'yes'.

When was the last time we went to Video Ezy or Blockbusters? We don't go to them any more... So we've got a bit of history to predict what will happen if we just put our head in the sand."

"(Amazon's launch) is a very big deal and will have a dramatic impact," business management consultant and retail expert, Paul Broadfoot, told HuffPost Australia.

Broadfoot has authored a book on how new technologies are driving innovation and new business models. He compares Amazon's launch in Australia with that of another disruptive online company, Netflix, who entered the Australian market just two years ago and already has the eyeballs of a third of the adult population, drawing viewers away from commercial free-to-air networks.

Amazon has so far gained a modest market share of 0.3 percent in Australia through overseas sales and its existing Kindle store and Amazon Web Services. But the launch of designated warehouses, a vastly expanded range and the potential for local delivery networks are game-changers, Broadfoot says.

Analysts at broking house Morgan Stanley have estimated that Amazon will take a $12 billion bite out of Australia's retail sector in the next decade.

Broadfoot believes this will put huge pressure on Australian businesses and see stores close across Australia, unless existing retailers start innovating and compete with cheaper, faster goods.

"When was the last time we went to a Video Ezy or Blockbuster? We don't go to them any more. All our Australian book retailers went through bankruptcy -- so we've got a bit of history to predict what will happen if we just put our head in the sand," he said.

Brendan McDermid / Reuters
Amazon will soon be using drones to deliver packages in record time. Loftus Peak CEO Alex Pollak says a lot of people are willing to pay for convenience.

Alex Pollak is the head of a global fund manager in disruptive businesses, Loftus Peak. He also believes the e-commerce giant will threaten existing businesses by pushing down prices and providing fast, user-friendly delivery.

"Amazon has got a cost advantage because they don't pay mall rents," he told HuffPost Australia.

"We've seen a truck load of retailers close in the last six months already. Unless you're in the zone, retail is tough" he said, pointing to the recent closures of Topshop, Herringbone and Rhodes & Beckett.

But it's not just about a price war.

Whereas in Australia the major retailers' business models have changed little in decades, Amazon is constantly innovating, updating its business model in response to new technologies and changing lifestyles.

One example of this is Amazon's recently unveiled plans for "multi-level fulfillment centres". These will function as warehouses but take the form of skyscrapers, where drones pick up and drop off packages from all floors of the building. If successful, these new centres will allow Amazon to locate its warehouses in the heart of high-density cities, cutting down drastically on delivery times.

'Faster, Cheaper, More'

So what is behind the global giant's overwhelming success?

"(Amazon founder and chairman) Jeff Bezos is famous for leaving an empty chair in the boardroom around the meeting and that chair represents the customer; what would the customer say, what would the customer think?" retail analyst Broadfoot said.

And it's this customer-focused attitude and the low emphasis on company profit which he believes is at the heart of its success -- in addition to the company's willingness to forgo profit margins, instead investing back into the business.

"Amazon doesn't try to make much profit, and they're entering a space where companies make margins -- the Harvey Normans, the Coles and Woolworths and JB Hi-Fis. The consumer will be the very big winner out of all this," Broadfoot said.

For shoppers used to paying more than our American and UK counterparts for pretty much everything -- from computers and other electronics through to make-up -- Amazon's plans to reportedly undercut current prices by as much as 30 percent is welcome news.

As is Amazon's fast delivery services offered through Amazon Prime.

Through Prime, subscribers pay an annual fee (in America, it's $US99 per year) for free two-day delivery of all products, as well as unlimited streaming of TV shows and movies via Prime Video. In some areas, Prime Now offers delivery within just two hours of purchase.

Australian retailers are widely viewed to be behind other countries when it comes to home delivery. Currently, almost half of shoppers believe Australian retailers' slow shipping times make the benefits of online shopping redundant, according to research conducted by PayPal.

All of this making Prime's delivery service a potential game-changer.

But if precedent is anything to go by, that is only the beginning of Amazon's plans for Australia.

Amazon: 2018 And Beyond

JASON REDMOND / Reuters
Amazon's first foray into bricks-and-mortar retail, the first Amazon Go store in Seattle has no queues and no checkout counters.

Amazon has remained tight-lipped on what services they're actually bringing, beyond promising a "full retail offering" and saying the Melbourne fulfillment centre will stock "hundreds of thousands" of products.

The company's range is vast and ever-growing, but based on Amazon's rollout other countries, Australia certainly won't be experiencing the full range by the end of 2018. It's expected it will start with the "safe" spaces of e-commerce, electronics, and non-perishable foodstuffs.

But the recent purchase of Whole Foods by Amazon for $US13.7 US billion ($A18 billion) has also increased speculation that Amazon will take a similar approach in Australia, potentially buying up a smaller grocery store and using it as a distribution point for their grocery delivery service, Amazon Fresh.

Increasing this speculation is the fact that Amazon has been advertising Brisbane-based job vacancies for Amazon Fresh.

Broadfoot said that leaving fresh foods until the company is more established in the market would be the conservative approach, but "Amazon doesn't have a reputation for being conservative -- they have a reputation for being very bold".

"Australia has always been and will always be a fantastic test market. It's small enough to constrain your risk and it could be a great place to test things," Broadfoot said.

As to when, estimates there vary too, but Broadfoot believes the company could be operational by early 2018.

"They do need to set up a large fulfillment centre here and go figure out all the logistics, but because it is primarily an online company, they can role out very, very quickly," he said.

So here's a breakdown of what we're likely to see in Australia in the not-too-distant-future:

Amazon Marketplace: Yes. This will in all likelihood be one of the first Amazon offerings in Australia. Announcing its Australia rollout, Amazon said it was "excited" to "empower small business" through opening its Marketplace, providing them with a platform to market and sell their goods. It will compete with other e-commerce platforms like eBay and Gumtree.

Amazon Prime: Yes. Through Amazon Prime, subscribers pay an annual fee (in America, it's $99 US per year) for free two-day delivery of all products, as well as unlimited streaming of TV shows and movies via Prime Video (which already launched in Australia at the end of 2016). In a market currently viewed to be behind on delivery times, this service could be a game-changer for Australian shoppers.

Amazon Prime Wardrobe: Likely. Amazon claims it will "turn your home into a dressing room" with this new service. Amazon Wardrobe lets you buy between three and 15 items of clothing, shoes or accessories and ships them to your door. You have a week to try everything on and then you can send back whatever you don't want. Delivery and returns are free, and the more items you keep, the more you save. If rolled out in Australia, it is likely to be a game-changer for existing clothes retailers, who have been slow to take to online shopping and lag behind other nations when it comes to delivery fees and wait times.

Amazon Fresh: Maybe. Analysts are divided on this one. Already available in some US states, London, Tokyo and Berlin, Amazon Fresh is a same-day fresh food delivery service -- something which is typically seen as a tougher market than non-consumables like electronics, especially in Australia with its low population density and high wages. But Amazon's purchase of Whole Foods in the US has indicated a renewed focus on fresh produce -- as have job ads for Amazon Fresh roles in Brisbane. Retail analyst Paul Broadfoot believes Amazon could be looking to use Australia as a test market for its Fresh range.

Amazon Go: Maybe, but not yet. Amazon Go is the company's first foray into physical stores. A checkout-free grocery store using cameras and sensors to automatically check out produce through the user's mobile phone, it's still in testing stages with one checkout-free grocery store in Seattle.

Amazon Restaurants: Uncertain. Currently operating in some parts of the US and London, Amazon Restaurants effectively operates as a food delivery service like Deliveroo or Menulog, something which could face stiff competition in markets like Sydney and Melbourne. It appears successful in London, however, with hundreds of restaurants signing up, including the Michelin-starred Indian eatery, Benares.

So while we don't quite know exactly what Amazon will bring just yet both Broadfoot and Pollak agree that, overall, Amazon's Australia launch will shake up the market and reshape the landscape for consumers.

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