Amazon triggers 'step change' in Australian e-commerce
Originally posted by Sue Mitchell @ afr.com
Amazon's Australian launch 12 months ago may not have lived up to the hype but the online retail behemoth is on track to replicate its US success after triggering a step change in the $28 billion local e-commerce market.
The launch of Amazon.com.au's new retail offer a year ago has boosted the entire e-commerce market, according to global media and marketing company Mindshare, with overall online traffic (excluding Amazon) rising 9.9 per cent year-on-year between February and September – a turnaround from the 0.1 per cent decline in online traffic in the same period a year ago.
Amazon's online traffic rose 31 per cent between February and September and has risen 42 per cent in 12 months, from 5.35 million average visitors a month pre-launch to 7.57 million in September, according to Mindshare and Nielsen Digital Ratings.
Australian omnichannel and online-only retailers who claimed a rising tide would lift all boats and that Amazon's arrival would provide a shot in the arm for the local e-commerce market have been vindicated.
"Amazon's arrival has really triggered that step change in audience behaviour," Mindshare chief strategy officer Joe Lunn said. "That entire competitive set was flat before Amazon's arrival.
"I feel we are witnessing the most disruptive event in Australian retail since the advent of the internet because its impact is so far-reaching beyond its direct competitor set."
On-track to replicate US success
Consumer awareness of Amazon has risen from 48 per cent before the launch to 57 per cent in March and to 73 per cent in October, while the number of customers who have or who are likely to purchase from Amazon tripled between November 2017 and October 2018 to 20 per cent – no doubt boosted in part by its decision to block Australian consumers from shopping on its US site (which was reversed last month).
Amazon's growth has been underpinned by an increase in its product range, which has risen from an estimated 7.5 million at launch to almost 100 million in November across 29 categories, including pantry foods and drinks, pet supplies, automotive accessories, outdoor and travel goods and jewellery.
Amazon has also launched new services including subscription-based delivery service Prime in June, Fulfillment by Amazon in February, voice-ordering using Amazon's Alexa and Alexa-enabled devices the same month, while shopping events such as Black Friday in November and Prime Day in July have attracted new shoppers and marketplace sellers, who now number 10,000.
"It's been a big year and we're only getting started," said Amazon Australia's country manager Rocco Braeuniger.
In a report this week Amazon said top-selling products in Australia over the last year included Nintendo consoles and games, Lego blocks, Blu-ray DVDs, fitness and health products including wearable tech such as Garmin and FitBit products, headphones and pet-care products.
Mindshare's Mr Lunn believes Amazon is on track to replicate its success in the US over the long term.
"They're really starting to gather momentum," he said. "I'd say about 14 per cent to 15 per cent of Australian internet users have now purchased from Amazon whereas back in March we estimated it was 4-6 per cent – that's a big increase in seven months or so.
"They're really gaining ground, on eBay in particular, and they've now passed Gumtree, Kogan.com and Catch by a long way."
Booktopia, DJs under the pump
However, not all Australian retailers are benefiting from the rising tide created by Amazon's berth.
Catch Group is still doing well, with online visits up 55 per cent year-on-year between February and September, boosted by the launch of an online marketplace offer in June last year, new products and services including mobile phones and a publicity blitz ahead of a mooted initial public offering, which has now been postponed until next year.
The online retail pioneer reported record daily sales during the Black Friday promotion last month and this week doubled the size of its pop-up store in Chadstone shopping centre to 1000 square metres so it can stock twice as many best-selling products.
Mr Lunn said eBay's growth had been flat year on year, "which is an achievement, because as they are the dominant player [with 12 million monthly visitors] they had the most to lose from a volume perspective."
Kogan's visitor growth has slowed to about 22 per cent year on year, less than half that at Catch, despite the launch of new services and verticals.
Retailers that have seen monthly visitors fall year on year include EB Games, Harvey Norman, Booktopia, Super Retail Group's BCF and Supercheap Auto chains, online book retailer Booktopia and David Jones.
"The challenge for businesses like David Jones and Harvey Norman is how to create a true omnichannel experience when you don't control all the retailers (and brands) that operate within your store and online," Mr Lunn said. "It's a really tough business model to translate into an omnichannel experience."
Amazon's expansion has also forced most Australian retailers to step up investment in e-commerce, fulfilment and, in some cases, prices.
However, according to Morningstar director Johannes Faul, EBIT margins for major listed retailers most exposed to Amazon.com.au rose an average 31 basis points in the June half 2018 after falling 35 basis points in the December half. This suggests retailers are starting to see a return on this investment.
"We estimate Amazon Australia will pick up momentum as more categories, products, Prime members and customers are added and will gradually capture an increasingly larger slice of Australian e-commerce retailing," said Mr Faul.
Morningstar expects Amazon's Australian revenue to grow by close to 50 per cent a year over the next decade, reaching $24 billion and representing 5 per cent of total retail sales by 2028.