Amazon’s ambitious foray into Australia may push local retailers to focus on segment-specific knowledge and invest in technology for survival, according to the research company.
Online retailer Amazon, which had long kept Australia on low priority list while expanding into less developed and smaller countries, finally launched its Australian e-commerce platform late last year.
The e-commerce giant had been put off by a combination of challenges in the country such as the geographical distance to other key markets and vast territory combined with a relatively small population.
As a result, its Australian customers had to pay exorbitant delivery fees since all orders had to be fulfilled from far-away distribution centers in the US and Asia, says GlobalData.
According to the company, total retail sales in Australia are expected to grow by A$60bn (US$46bn) between 2016 and 2021, with no signs of a decline. The online channel is outperforming bricks-and-mortar, and is expected to grow its share from the current 7 per cent of all sales to 10 per centover the same period.
Despite the presence of various international retailers, the Australian market across various segments is still dominated by local retailers such as JB Hi-Fi, Woolworths and Coles.
GlobalData said Amazon’s business model relies on efficient distribution in large volumes and that there are also major opportunities to establish leadership through technology in Australia, which is hard to replicate by local as well as international competitors.
The company said the initial setup of operations in Australia can be complex and unprofitable.
“Australian retailers need to invest in mobile apps that include various features from browsing and shopping to product and style advice,” said Andreas Olah, GlobalData digital retail analyst.
“By focusing on their customer service capabilities with segment-specific knowledge, and a strong brand image with Australian identity, these local retailers have the opportunity to build deeper connections with their customers than what a global generalist like Amazon could ever achieve, even if it opened physical stores.”
To compete with local retailers, over time Amazon may look to open physical stores such as Amazon Go checkout-free grocery stores. The revolutionary and fully automated store concept is backed by sophisticated artificial intelligence (AI) with image recognition and machine learning (ML) capabilities. The first Amazon Go store has just been opened in the US, with plans to expand these stores to major cities globally.
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