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Amazon’s cautious approach in Australasia makes a lot of sense – all the staff are new, as are the distribution partners, and there’s a new market to learn

The Amazon effect – By
Nigel Parry

They are finally here – Amazon, the largest online retailer in the world, gets close to New Zealand’s shores. What effect will that have on our supply chains?

Take your pick. Amazon is either the world’s biggest disruptor or the customers’ greatest saviour. Either way, while Kiwis have been enjoying the globe’s biggest e-tailer’s offerings for some time, either direct or using services such as New Zealand Post’s YouShop, the doors opened in December last year at a new 24,000 sq m ‘fulfilment centre’ in Dandenong South near Melbourne, heralding a new era in Australian clicks and credit card payments.

So far, the excitement has been muted on both sides of the Tasman. The opening up of the Australian arm of Amazon has been described as a ‘soft launch’, and certainly on day one the choice of products available was a fraction of the more established markets, with hardly anything shipping to New Zealand (Amazon won’t say how much).

Growing legs

That toe in the water is already growing to a foot, maybe even part of a leg. According to analysts, the number of products being sold through Amazon Australia’s website doubled in the first few weeks, prices have already dropped to ultra-competitive in several categories, the market mammoth has already opened up its distribution services and marketplace to other sellers (increasing the online offering), their Prime premium service is slated for later this year, and everyone is convinced more is to come.

The Echo, Amazon’s own voice control device for playing music and much more, is currently only available in NZ through 
local retailers

Not here, not so far anyway. Indications are that the organisation sees Australasia as one market, but so far it’s a bit of a tease. In February, Amazon launched their ‘unlimited’ music service to both Australia and New Zealand, giving access to a streaming service boasting 45 million tunes.

The excitement is slightly dampened by the fact that the Echo, Amazon’s own voice control device for playing music and much more, is only available through local retailers here (as of early March), and at a significantly higher price than our Aussie cousins can get direct from Dandenong, with free shipping thrown in.

A cautious approach

New Zealand Post does predict an effect. “We would expect an increase in Amazon parcels arriving in New Zealand with the opening of Amazon’s new distribution centre in Australia,” says spokesperson Alice Paine.

Customs does not see any immediate impact of the emergence and growth of Amazon’s footprint in Australia, nor see a requirement to change any processes currently.

Amazon won’t talk about future plans (I did ask), but all the smart money suggests their cautious approach makes a lot of sense. All the staff are new. So are the distribution partners. There’s a new market to learn and new competitors (almost 70% of Australia’s online sales go to local websites). 

Why would they want to over-promise and under-deliver? There’s just one fulfilment centre so far, whereas there are over 200 in the USA alone, where Amazon accounts for one-third of all online sales and is growing at double the industry average.

They did, however, confirm that first-day orders on Amazon.com.au were “higher than for any other launch day in Amazon history”. As the pundits put it, we may have seen our last Amazon-free Christmas in Aotearoa.

The effect on NZ logistics

Will the arrival of Amazon in Australasia see our long-established supply chains and logistics operations thrown into turmoil? There’s no need to panic just yet. 

I spoke to Greg Harford, general manager public affairs at industry organisation Retail New Zealand, who popped a little perspective into the pot. “We spend about $3.4 billion a year online, out of a total retail spend of $83 billion,” he says. “Online will not overtake physical retail.”

Amazon currently operates a network of 16 fulfilment centres across the UK

The rate of growth of both total online spending and foreign spending is continuing to accelerate: online sales grew by 17% last year, while sales in physical stores grew 3.5%.

“Online is increasingly important. Retailers will become more focused on providing added value you can’t get online,” says Mr Harford. “Stores will become more of a showroom over time. Shops are likely to become smaller and carry less stock. More deliveries will go direct to home, less bulk to stores.”

Our appetite for international web purchases is on the rise; last year, 55% of online shopping was with New Zealand websites, down from 66% in 2012, and international will overtake local web trade by the end of this year, according to Mr Harford.

Falling boundaries

The effect is not evenly spread across all categories. Analytics firm Ugam says that for Amazon, around a third of products are electronics, the biggest category, followed by toys, then home and kitchen ware. 

Greg Harford, general manager public affairs at Retail New Zealand: “Online spending will not overtake physical retail”

“Areas most prone to competition from online providers, and Amazon is a big chunk of that, are books, sporting goods, fashion and electronics, where it is quite easy to make a comparison and not a lot of product differentiation,” adds Greg Harford.

Alex Cherix, director at PwC in Auckland, concurs. “In an increasingly globalised world, boundaries are becoming less and less likely to keep competitors out. It’s in this ‘new New Zealand’ where overseas competitors are offering exciting new products and experiences to the local market. They can entice Kiwis to spend with them through tried-and-tested approaches from around the globe and a deep understanding of the power of digital.”

Response and change

Not that physical retailers are resting on their laurels. In response to Amazon’s arrival, JB Hi-Fi is now offering same-day delivery in parts of Australia, even three-hour delivery – a game-changer for customers and an interesting logistical twist.

“What we’re also seeing is Kiwi retailers differentiate, provide extra experiences that online can’t provide,” comments Greg Harford. He sees Amazon as just part of a trend to online, and the current $400 limit, before GST and import duties kick in, puts a crimp on the market here. 

The big leap would be an Amazon fulfilment centre on these shores, but they are not revealing their plans (of course).

In the meantime, there is still potential to change the shape of parcel deliveries. “The principal impact will be more products coming out of Australia rather than the US or China,” notes Greg Harford. 

“The good news for the transport industry is there will continue to be lots of products shipped, and potentially – if Kiwi retailers use Amazon’s marketplace – more outbound product as well.”

 

Award-winning journalist Nigel Parry started writing for FTD over ten years ago, and has been covering logistics and supply chain issues in a number of countries for more than two decades; he can be contacted at 
nigel.parry@gmail.com


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