Gerry Harvey’s comments in the media last week on Amazon’s expansion might have been correct if this were the 1980s.
Harvey, who is of course, the chairman of Havery Norman, said that to his knowledge, Amazon hadn’t bought a block of land, and even when it does he’d expect it not to be able to do anything with it for three years.
But what he’s misunderstanding is that we are in a totally different business paradigm to that which saw him build his retail empire. The new age of business, brings speed, agility and the willingness to take what seem like bigger risks, but are calculated risks that secure market share and presence first.
To me even 2018 seems like a slow burn for Amazon to launch here. It needs footprint and resources, but it’s hardly a new game for Amazon. I recently read an article in the Wall Street Journal on how Amazon puts in place technology ranging from touch screens to robots to minimise the time it takes to train new hires to as little as two days. Compare this to the more standard six weeks for a conventional warehouse job and you’re looking at eight weeks to set up, rather than Harvey’s three years.
Amazon has the technology, the processes and the horsepower to move quickly. A quick find-and-replace for Zip Code to Post Code and they will have their IT needs sorted. The real pinch point for Amazon would be our woefully slow internet speeds.
This is an organisation which has conquered markets much bigger than Harvey has, in a much shorter period of time. The equipment in Amazon warehouses is tried and tested. It could be loaded and shipped from American in under six weeks by boat. I’m not sure how much travelling Gerry has been doing around industrial areas of our cities and regional centres, but I have seen plenty of newly built warehouses with “to lease” signs out the front. If McDonald’s can build a restaurant in seven days why can’t Amazon build a business in eight weeks?
When it comes to supply chains, Amazon has decided it can build it better than it can be bought. A recent change of tack was the purchase of US bricks and mortar chain Wholefoods for $13.7bn. A potential game changer compared to its previous acquisitions. The move suggests Amazon sees some areas of retail it doesn’t yet fully understand, and to grow at the pace it wants means acquisitions could form its next phase.
If Amazon decides Australia is priority it can pretty much buy who it likes. Woolworths, Coles or Metcash seem complex targets, but if it follows its Wholefoods acquisition, it could look to buy an upmarket retailer. Based on market size it would be looking for a retailer with about 35 stores – targets such as About Life (eight stores) or Harris Farms (26 stores) to establish a presence in grocery seem more likely. Having shopped at both these stores would easily convert to the Wholefoods brand if there was a competitive advantage in doing so.
Amazon’s seemingly unstoppable momentum illustrates its ability to collaborate, partner with or acquire businesses that matches its own model. Gone are the days where acquisition/merger are the only real business relationships. Perhaps the biggest weakness in the Australian industry for Amazon is that its business is built on speed and current distribution and logistics networks in Australia may not be up to scratch. Partnering with a ready-made distribution network could be the key for Amazon’s success here. Former Amazon executive Brittain Ladd hinted this could be the exact route to market for Amazon when he suggested it would seek to use Metcash’s infrastructure as it expanded in Australia. There are a number of other food distribution businesses that could provide a similar network to Metcash, without the complication of buying a business as complex as Metcash. An alternative could be PFD Food services which was recently linked to Woolworths and has recently invested in infrastructure.
It really is just a question of priority which will dictate how quickly Amazon will be in Australia, so a retailer like Gerry Harvey should be paying close attention.