Are Australian Businesses Prepared for Amazon’s Arrival?

February 14, 2017

Amazon is expected to open its doors – at least figuratively – in Australia later this year. The entry of the US online behemoth into the Australian market will shake up the consumer goods sector as never before.

Details are scant about Amazon’s actual plans, although it has recently lodged more than 200 trademark applications with IP Australia, evidence it is preparing for its launch here[1].

It is understood Amazon is launching its general merchandise, fresh food and video streaming services in this market.

Justin Braitling, Watermark Funds Management’s chief investment officer, was quoted in the Australian Financial Review following a special briefing by Amazon.

He explained the online retailer is planning to establish distribution centres around the country, as well as real stores, in an attempt to capture a substantial share of the markets in which it intends to compete[2].

Amazon has very deep pockets and the ability to undercut the market to buy market share. Moreover, it was one of the pioneers of same-day delivery. As a result, most US consumers now expect the businesses from which they buy products and services, to offer the same level of service.

One of its businesses, Amazon Prime, offers deliveries in the US within two hours. While it’s not known whether it plans to offer the same service here, local retailers must assume it will at some stage, even if it does not roll out Amazon Prime initially. Amazon has also been a pioneer of drone deliveries, especially across the UK.

Whatever approach Amazon takes to distribution, it’s likely to completely disrupt the Australian supply chain and logistics sector. Local businesses must be able to provide the same level of service to effectively compete.

While it’s easy to view Amazon’s arrival in Australia as a threat, the best retailers and other businesses in the markets in which it competes will view it as an opportunity.

Amazon’s arrival means many local businesses will need to rethink their business models and become accustomed to a world where margins are much slimmer.

One way to do this is by investing in plant and equipment to make operations more streamlined and productive. But, in an environment where the margins are being squeezed, purchasing equipment may not be the most economically viable option.

Instead, companies can access funding via independent capital providers to obtain the assets they require. This way, they can make the most of their long-term available capital to invest in growing their overall operations.

There are still a few months until Amazon opens its doors, reportedly in September. So now’s the time to undertake a comprehensive assessment of your business to ensure it is able to compete once Amazon does start operating in Australia. Will your business compete with Amazon, or would it be more lucrative to become an Amazon seller? How will your business manage distribution, warehousing and shipments? What are the requirements for packaging, sending and storing merchandise at an Amazon warehouse? What equipment will you need to manage this, and how do you finance it?

Businesses that start preparing now will have the opportunity to thrive and survive in an increasingly competitive world. Those that don’t will need to reassess whether they really do have a business model that is viable to compete with one of the most aggressive and successful businesses in the world.

[1] Mitchel, S., 2016, The Australian Financial Review, “Amazon trademarks reveal Australian ambitions”
[2] Boyd, T., 2016, Amazon delays Australian launch to September to include fresh goods

 

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