As Amazon Prime quietly granted excited Australian customers access to its previously geo-blocked services last week, Australian retailers have been prompted to reconsider their own digital strategy.
Some chief executives are excited by the prospect of the online retail giant finally moving closer to entering the Australian retail landscape: at last week’s annual general meeting of online retailer Kogan.com, chief executive Ruslan Kogan spoke enthusiastically of the prospect of Amazon hitting our shores in a more formal way, saying “a rising tide lifts all boats”.
Since listing earlier in 2016 and buying the online database and sales platform of collapsed electronics retailer Dick Smith, Kogan has been able to increase its revenue to $211.2 million, beating prospectus forecasts for the year by $3.6 million. When the company delivered its first report to the market in August, it outlined plans to continue to move beyond electronics into the sale of partner and private label brands for anything from men’s shavers to pet food.
“At a high level, the potential arrival of Amazon means the biggest, hottest brands will have no choice but to put products and significant volume through online channels,” Kogan said last week.
He highlighted that the current Australian retail market sees around 6% of sales through digital channels, and promoted Kogan’s private label offering as a key point of competition for when Amazon finally lands.
However, for smaller operators the task to turn their businesses into digital-first may prove a significant challenge, given the scale of Amazon’s operations and the speed at which its products are now delivered to consumers – sometimes within the day for Prime members in the US.
Some of Australia’s most established retailers quote figures well below the 6% figure for digital sales. For example, JB Hi-Fi’s 2016 report informs shareholders the retailer had increased online sales by 36% for the year, but that only brought it to 3% of overall annual sales. Meanwhile, when Premier Investments’ portfolio cracked the $1 billion revenue mark this year, management highlighted a plan to lift digital sales to $100 million a year by 2020 – a small sliver of the overall retail game.
As customers gleefully jumped in to Amazon’s online video offerings this weekend, some baffled by how it was available to them so suddenly after years of geo-blocking, the local consumer enthusiasm for the platform was clear.
“As if I need another reason to stay home,” one Facebook comment writer added enthusiastically, as hundreds of customers compared notes on the available video on demand.
However, this is just the start of Amazon’s reach into the country, and with the bulk of what’s currently available being digital products, now’s the time for smaller retailers to get ahead with a plan to face the retail giant’s well-refined delivery strategy, says Retail Oasis strategist Pippa Kulmar.
“They’re so good – at predictive recommendations, at marketing, the have all of these things set up,” she tells SmartCompany.
“Competition is always good – as frustrating as it is, it forces people to rethink what they’re doing.”
This means starting work on the value proposition for customers online right now – because for all the talk of big digital players hitting Australia, Kulmar believes some are leaving it too late to actually act.
“Amazon’s mantra is all about being the most consumer centric company,” she says.
“So you have to actually bed that down as part of the culture. Who is your consumer, how are they influenced – think that through all the time, but do it now.”
For Kogan, Amazon presents an opportunity to leverage a global platform to sell its own products, says its chief executive.
“We have a strong Private Label business and Amazon provides another distribution channel to sell our products and deliver our value proposition,” Ruslan Kogan told the market last week, saying the current landscape was too small for players to really take off online.
“The path to market in Australia is begging for diversification.”