Amazon Impact: Australian Retail is Primed for Disruption
Before Amazon’s launch, financial forecasts of potential impact on Australian retail were plentiful.
However, Starcom believes these forecasts dramatically underestimate the speed of disruption.
Our view is based on understanding human behaviour and the way in which people interact with commerce. Our research led us to three key conclusions:
- People are Ready but Business is Not
Australian consumers are already shopping online. Estimates are that up to 50% of our online purchases are made overseas[i] many of them with Amazon. This experience has set high expectations.
At the same time, people are looking forward to Amazon’s arrival. Our research suggests that 72% of Australians intend to use Amazon.com.au when it launches.[ii]
The challenges Amazon face in Australia are relatively small. Three fulfilment centres could offer Prime Now 2 hour delivery to close to 50% of the population (in the US the equivalent figure is around 5%)[iii]. Meanwhile, at the start of 2017, 54% of Australian retailers had no plans to offer next day delivery.[iv]
We know any retail business that fails to keep pace with changing expectations will struggle to survive.
- Speed is the Killer App
Customer expectations will be shaped primarily by speed, which will be shaped increasingly by Prime. Even before Amazon launched, 34% of Australians considered themselves likely to subscribe.3
Netflix, who launched a similarly well-known, global product into Australia, achieved 30% household penetration in 23 months. We estimate that with the opportunity Prime offers to Australian shoppers, we will see a similar adoption rate for Amazon Prime in Australia.
- Amazon, Prime and Alexa will Change Everything
The scale at which Amazon operates in its established markets creates a virtuous circle. Prime members shop twice as often as non-members and spend 85% more per year.[v] Amazon gains ever richer data, enabling the creation of an even better experience.
At the same time, Amazon continually reduces friction and removes barriers. The current focus is on voice activated commerce, powered by Amazon’s Echo and Alexa.
As Prime membership builds reliance on Amazon for shopping, as simple home functions are automated by Alexa and ordering on Amazon becomes easier than leaving the house, our interaction with brands and retail will fundamentally change.
Short Term Pain for Long Term Gain
There are significant opportunities for Australian businesses who can address gaps in delivery of world class commerce, at the same time as preparing for a voice-enabled future.
Amazon creates national distribution capability overnight for independent retailers across the country. We expect that its presence will lift the entire ecommerce category.
However the opportunities may only be apparent to businesses who can meet customer expectations set by Amazon.
This will require investment and short term pain on the bottom line … Because if you don’t feel it on the bottom line in 2018, you’ll feel it on the top line in 2019.
 Morgan Stanley/Euromonitor
 Publicis Media Research: Amazon in Australia Oct-Dec 19 (n=900)
 U.S. Census Bureau July 2016/ Australian Bureau of Statistics 2016
 Paypal mCommerce Index May 17
 Statista Amazon Portal September 2017