Retail

Local retailers will soon feel the force of Amazon’s aggressive price-drop strategy

Emma Koehn /

Amazon Australia launch

Source: AAP/Joe Castro

Amazon Australia is stealthily expanding its range as it starts more aggressive cost cutting in key categories, according to retail analysts, supporting predictions from experts in 2017 that the retail giant is playing a long game.

Critics of Amazon’s launch into the Australian market last year were quick to point out that the retailer wasn’t offering up super discounts or the full suite of its delivery offerings from the outset. But retail experts told SmartCompany at the time Amazon was never intending to come out all guns blazing.

Research released on Tuesday by the equities team at Morgan Stanley Australia supports the idea that every move Amazon makes is calculated — and it is ramping up activity faster than many shoppers and businesses might think.

Releasing their insights on the day ‘Fulfilment by Amazon’ launched in Australia, the analysts crunched the numbers on Amazon Australia’s prices and the volume of available products in each category. What they uncovered was how quickly Amazon is “adapting its model” to Australia.

While Amazon launched in December with prices basically on par with, or more expensive than, leading Australian retailers, Morgan Stanley researchers say the game has changed just two months on.

Source: Morgan Stanley.

For example, sporting goods were on average one percent cheaper on Amazon compared with other local retailers in late 2017, but at the end of February, Amazon’s prices were 16% lower.

Clothing options were three percent more expensive than local incumbents when the retail giant launched in December, but are now 17% less expensive on average.

The only category where Amazon has paused price reductions is in the groceries space. While the analysts say Amazon came on strong with discounts in this category, it is now just one percent less expensive than local grocery sellers.

The retailer has also quickly expanded its product ranges in key areas like clothing: at the time of launch, Amazon Australia sold just over 85,000 products in its clothing and shoes category. It now offers 500,000, according to Morgan Stanley.

Given the speed with which the retail giant has moved on price and products, the research team says local incumbents will have no choice but to focus on their own pricing structures in the near future.

The numbers echo sentiments of retail analysts who have weighed in over the past year with warnings that Amazon will start slow but then quickly amp up on logistics and pricing.

In December, retail consultant John Batistich told SmartCompany local retailers had some time to prepare for the full onslaught of the Amazon beast, but would have to act swiftly to get ahead of the company as it progressively rolled out services.

“Eliminate any cost that the customer doesn’t value, because Amazon is very focused in that regard,” he advised retailers.

READ MORE: Amazon Australia becomes the ‘fastest-growing’ marketplace, as SMEs welcome sales surge

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Emma Koehn

Emma Koehn is SmartCompany's senior journalist.

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  • Nexusfast123

    Australian retailers are going to experience a lot of pain.

  • moriac

    Its interesting the power large players have. A friend had a disagreement with amazon over a transaction over a decade ago and remains blocked from future dealing forever she says where at that time she felt our consumer laws were inadequate to provide assistance in dealing with off shore players. i wonder if things have changed now they have a presence in australia.

  • Jason Proposch

    Most Bricks and Mortar stores who believe they can compete with Amazon on price are in for a very hard landing. The B&M competitive angle needs to be more about experiences, added value (which is NOT discounting) and capitalising on what makes them different from Amazon. Price does not make them different. Free delivery does not make them different. Physical in-store experiences make them different. Phygital experiences make them different. Any startup or early stage business with an innovation aimed at helping B&M stores should have every retailer lined up outside their door, screaming for attention. It’s getting late, bit it’s not too late. Grab the five nearest innovators and try something new. Many of the things that made you survive and successful to date will sabotage your future. Startups and innovators are only too willing to help. Get them in for a chat. It really is that easy.