An Amazonian Impact on the Retail Sector

Amazon Applying themselves

Earlier this year Amazon.com launched a price-check phone app that allows shoppers to scan a barcode in a shop to see if it’s cheaper online (well, on Amazon to be precise). It caused a hell of an uproar in America, because it was seen as a direct attack on ‘Mom and Pop’ retailers, which of course is exactly what it was.

Now it’s our turn.

According to reports in the press this week, Amazon is looking to set up shop in Australia – or, more accurately, to build a huge warehouse distribution center here. After all, Amazon is already selling millions of dollars of handy stuff to Australians – like the Original Roadkill Cookbook (10 reviews) and the Mangroomer Do-it-yourself Electric Backhair Shaver (477 reviews).

The press reports quoted a Sydney accountant who’s been a director of the otherwise dormant holding company Amazon Corporate Services for the past 12 years: “There’s been a change in direction. I sense it’s going to be big.”

Damn right it will be, and for three reasons:

1. It’s great news for shoppers

When I became an Amazon customer in 1999 the company was a barely profitable online bookseller.

Today they’ve transformed themselves into the world’s shopping mall. Last year the company took $US48 billion through its tills, selling books (and even more e-books), fashion, electronics, home and garden gear, furniture and groceries – even car parts! Half of these sales come from countries outside the US, hence the proposed expansion here.

Now you’d have to think that the Australian distribution centre will only have a narrow range of biggest sellers to start off with. But I’m sure they can ramp things up in the future and compete head on with every leading segment of retailing – not just books.

2. It’s bad news for retailers

After years of beating up on small retailers, our largest shopkeepers, like Harvey Norman, David Jones, Myer and JB Hi-Fi, are about to get a taste of their own medicine. For years they’ve played the geographic game, squeezing out competitors by snapping up the best retail spots and then screwing both suppliers and customers.

Internet shopping (and a strong Aussie dollar) is killing that model, but the one sticking point is that the savings you score from buying overseas are mostly lost when you factor in shipping costs.

The main benefit of Amazon having a local distribution centre is that they should be able to offer same day (or next day) cut-price, and sometimes free, delivery to Australian customers, like they do in the US. That’s a game-changer because the shopping experience on Amazon is far better than anything on offer from our local retailers.

Not only do they have incredibly cheap prices and a massive range, I actually trust the millions of online customer reviews more than I trust the bogan salesman in a Harvey Norman polyester shirt trying to cop a commission in a suburban shopping mall.

Best of all, Amazon knows what I like – in fact each time I go there they set up the shop just for me. I see no cleaning utensils, homewares or fashion of any description. My shop is wall-to-wall finance books. Heaven.

They can do it because they’ve tracked everything I’ve bought for the past 13 years (and even the stuff I’ve picked up off the virtual shelf and had a closer look at) and now only offer me stuff based on my preferences.

In America about 10 per cent (and growing) of retail purchases are made on the internet. It’s half that here. The reason is that our biggest retailers haven’t devoted much time or money to selling stuff via the net (case in point: David Jones generates about 1 per cent of its sales online).

Just like our local television networks, our retailers have mistakenly believed that their competitors were each other. But if the press reports are true, they’re about to encounter a ferocious new competitor.

Bear that in mind when you review your share portfolio, especially if it contains JB Hi-Fi, David Jones, Myer, Premier Investments or Harvey Norman. These are no longer set-and-forget investments.

3. It’s terrible news for jobs

My family are proud small business retailers. We employ workers with great people skills but not much formal education. People like this are the backbone of the entire retail industry.

As a small retailer we look after our customers. And we make a decent profit – but it’s an increasingly tough game.

I have this argument with my old man all the time. No, traditional retailing won’t dive off a cliff next year just because Amazon is reportedly setting up shop. Yet these are long-term trends, and moving quickly.

What we’re seeing right now are the early stages of a hollowing-out of one of our largest employment sectors. Retail keeps millions of people in jobs, allowing them to pay bills and meet mortgage repayments.

But traditional shopkeeping is increasingly being taken over by customer-centric, data-driven businesses with huge economies of scale that are as much logistical operations as they are retailers. And these businesses require much fewer staff.

You see it in the supermarkets that have been pushing into online delivery, train station grocery pickup points, and self-service checkouts (which I refuse to use, no matter how long the checkout chick, or checkout bro, line is). And you see it at Amazon, which will generate tens of millions of dollars in sales when they set up shop here, without employing a single sales assistant.

Tread Your Own Path!