Image by Frits Ahlefeldt
*Since posting this blog, The Age has amended the original article, that the quoted Amazon source was NOT a current Amazon employee and did not speak for the company. Further to this, Amazon made an official announcement on 20th April and the news is now reflected on the Amazon Australia web site.
The speculation is over with an Amazon executive confirming to Fairfax media that the company plans to be fully operational in Australia by the end of 2018.
“Australians will be able to buy everything from takeaway and groceries to electronics and clothing from Amazon’s greatly expanded online offering by the end of next year.“ Quotes The Age March 29th 2017
The Australian retail community has been abuzz with the news that Amazon is coming to invade Australia with no official confirmation until now. Amazon has been reported as scoping out warehousing sites, and hiring local logistics people needed for a successful local ecommerce operation. But, the smart money backed a minimum of 12 month’s lead time once they broke cover with real estate, logistics and once local agreements were entered in to.
So what does this mean for Australia, retailing and the auto parts market in particular?
In the U.S., Amazon has been accused of “destroying traditional retailers” according to the Financial Review. Steve Odland, a former AutoZone chief executive interviewed for the article said that traditional bricks and mortar retailers were heading for a “slow moving train wreck” with wide ranging knock-on effects to things like commercial real estate as Amazon accelerates the shift to online.
More on that later but first some local history.
Before, Amazon was content sending products direct to Australian consumers through couriers and soft service delivery. In 2016, some analysts predicted Amazon would set up shop here prior to 1st July 2017 and in time for changes to the GST (goods and services tax) being applied to imported goods below a $1000 threshold. By February this year, analysts had set back the rumored invasion to September 2017. The rumor mill gathered pace through early 2017 and we now have a concrete answer but what will the new Amazon Australia service offering entail?
And the stakes are high.
According to the same article, Australia’s retail sector is worth around $222 billion. Based on overseas experience, Amazon can undercut conventional retail prices by as much as 30 percent, enabling it to carve as much as $3.5 to $4 billion out of the Australian retail sector over the next five years according to a Sydney Morning Herald piece. This would equate to 14 percent of all local online spending and 1.1 percent of total Australian retail spending.
Bigger fish in the pond
Most think Australian retailers are still unprepared. In an ABC News interview John McDuling, associate editor at the Australian Financial Review, says local retailers have been operating for years on an “oligopoly economy” business model “in every sort of market segment” – one or two big players with a network of physical retail stores and supply chains around the country and the biggest profit margins in the world. Faced with Amazon’s business model: minimal physical stores, very advanced supply chains, and a focus on keeping prices low – only a few may be able to keep up. Australian online retailer conversion rates are less than 10 percent vs Amazon’s U.S. site converting 49 percent of Australian shoppers to date.
Young Australians welcome Amazon
A recent Neilsen survey shows young Australians are particularly interested in having a wider range of products that are cheaper and delivered faster. According to Neilsen’s January 2017 study:
“75% of Australians aged 18+ saying they are interested in Amazon Australia; while 56% say they are likely to purchase from its Australian site; and 45% saying they would pay to become an Amazon Prime member to receive special deals, discounts and delivery perks.”
Those surveyed showed that they would most likely buy (in decreasing order) electronic goods, books, clothes, shoes, music, and videos from Amazon Australia. Amazon Prime (a free and fast delivery subscription for $US100 per year) tends to make people spend more. Food was of least interest, according to the respondents (only a few were aware of Amazon Now, for delivering groceries under an hour).
No auto parts were mentioned in the study but clearer younger shoppers and consumers are voting with their wallets, driving the change which will pick up pace with Amazon’s arrival regardless of sector.
Will Amazon Australia do auto parts?
We’re not sure but if they do, the US experience provides some clues as to what might happen here.
In January 2017, Amazon US announced it had set its sights on the US$50 billion do-it-yourself after-market auto parts business. As a result, shares of auto parts retailers in the U.S. fell sharply with Autozone Inc, seeing a 5.1 percent slump in one day.
According to one Wall Street analyst, Amazon’s auto parts business could expand by as much as 50% in the first year. A simple, quoted example to illustrate why.
Dorman 902-407 auxiliary water pump currently costs (US)$90.70 on Amazon and the same part costs (US)$124.99 on AutoZone’s website.
Amazon has been able to achieve this because other parts retailers are focusing on obtaining deals with foreign, private-label part manufacturers. This makes the parts retailers more profitable, but not the local part manufacturers.
An executive at an auto parts manufacturer even said that this reduced the loyalty of the manufacturers to these chain retailers.
Meanwhile, Amazon is paying US auto parts manufacturers up to 30 per cent more for their products on a direct purchase and supply.
Its claimed that Amazon has already reached the ‘tipping point’ to dislodge U.S. auto parts giants like O’Reilly Auto Parts and Genuine Auto Parts from their hold of the U.S. auto parts market. The same article quotes that “Amazon has struck supply contracts with some of the largest parts makers including Federal-Mogul Holdings Corp (NASDAQ: FDML), Dorman Products Inc, Robert Bosch GmbH and Cardone Industries Inc, NY Post reported on Sunday, citing sources. (http://nyp.st/2k8Ibhq)”
“The majority of us now are selling directly to Amazon.” Said one auto parts executive.
And the changes aren’t just aimed at retail and e-commerce. By September last year, Amazon started offering same-day auto parts delivery in 40 U.S. cities, at prices averaging 23 percent less than other aftermarket auto parts retailers (according to investment banking firm Jefferies LLC). This makes Amazon more attractive for workshops and trade customers too.
Meanwhile, in November last year, Amazon also started selling select Fiat Chrysler cars in Italy. This could be a clue to further disruption moving in to the new car retailing area as well.
How can sellers compete with Amazon?
“Adapt and adapt quickly”, says retail king Gerry Harvey of retail giant Harvey Norman, in the same ABC News interview previously mentioned. Also in that interview, Brad Stone, Bloomberg correspondent and author of The Everything Store: Jeff Bezos and the Age of Amazon says that, in North America, retailers that have successfully survived Amazon’s onslaught (like Nordstrom) have great customer service, generous return policy, personal shopping guides – something that, by nature, Amazon cannot compete with.
Instead of fighting it out on price and range of selection, “you might get them [Amazon] on convenience, because it still does takes two days, or maybe a day, for something to appear on your doorstep”, Stone says.
With auto parts, some workshops and trade customers are spoilt with virtual “on-demand” deliveries from a variety of providers. But, is it too far-fetched to imagine an Amazon drone delivering a fuel filter on to the workshop forecourt?
Amazon will not go unchallenged
Just earlier this year, Alibaba set up its Australia & New Zealand headquarters in Melbourne. Alibaba’s ANZ director, Maggie Zhou, has been quoted as saying their goal is “to build the entire operating infrastructure needed to enable local businesses to expand globally” – competing with the advantages offered by Amazon to local manufacturers in terms of logistics, cloud computing and more.
Amazon may also be facing a threat from within. McDuling says Amazon has been “criticised heavily for the grueling conditions in their warehouses … and, in Australia … we have stricter protections on things like that … we have a different attitude on issues on workplace laws and overtime pay”.
A time of great change nonetheless
The move toward online retail and e-commerce in general is growing at over 10 percent per annum and Amazon’s entrance on the Aussie stage will accelerate that further as it makes it easier for consumers to buy online.
Based on above, DIY auto parts customers are enjoying greater choice of brands and online sellers with evidence that garages and trade customers are using these options more for non-time critical purchases. This is a predictable change happening across all sectors.
However, the biggest disruption in the auto parts space relates to logistics, supply chain and distribution relationships. The U.S. experience suggests there are opportunities for brands to establish strong links with online sellers that might re-energise a more traditional brand focus partnership model.
Value-adding becomes even more important with efficient and streamlined operations having an edge over traditional models.
These changes continue to underline the importance of data and standards. All the major online retailers and channels use ACES/PIES for North America and TecDoc for other markets like Europe and Australia.
Good data also means quality images, rich content, enhanced meta data and meaningful text and materiel that is properly catalogued and presented for display, publishing and search indexing.
Fundamentally, good data increasingly means good visibility for you and your business.
Talk to Enform about our solutions for good data and e-commerce deployment.