size (Australia 24 million, Canada 36 million) Our land mass is comparable (Australia 7.69 million km2, Canada 9.98 million km2) Both countries have vast, sparsely populated regions that present fulfilment challenges. Our retail space per person is reasonably aligned (Australia 11.1 square feet, Canada 16.4 square feet, US 23.5 square feet) For years, retailers in both of our countries treated ecommerce like an afterthought Both countries have high internet penetration (Australia 80 per cent, Canada 89 per cent) In both Australia and Canada, there is substantial room for growth of online retail spend Before entering either country, Amazon already generated revenue from online sales  Here’s how we see Amazon’s foray into Australia playing out. 1.    Measured expansion The establishment of distribution centres is the final hurdle for Amazon in Australia and construction of the flagship Melbourne centre is already underway. The expectation is that Amazon will create a network of fulfilment centres but it won’t happen overnight and they won’t be all over Australia. Amazon established its first distribution centre in Canada in 2010. Since then, it’s established a new distribution centre every year. Today, it has six fulfilment centres in Canada (predominantly located throughout the most populated eastern state of Ontario) and a cluster of data centres in Quebec. Our prediction is that Amazon will seek to create a similar transport and logistics footprint on the east coast of Australia. 2.    Reduced range, with more to come Product range is a critical success factor whenever Amazon enters a new market and it’s expected to be the most important determinant for Amazon in Australia. Amazon’s US website is currently estimated to offer a staggering 488 million stock keeping units (SKUs). Right now, the expectation is that within five to ten years of launch, the Australian website will look more like the Canadian marketplace, which offers a modest 130 million or so SKUs. But Aussie shoppers need not fret – the breadth and depth of categories will continue to grow. COUNTRY SKUs (2015) SKUs (2013) USA 488 million 235 million UK 261 million 108 million Germany 237 million 96 million France 209 million 90 million Japan 168 million 60 million Italy 165 million 77 million Spain 160 million 76 million Canada 133 million 77 million India 42 million 18 million Mexico 36 million 33 million China 13 million 4 million Estimated number of products offered on amazon websites (Source: Export-x) 3.    Prime Time delay If Amazon follows the Canadian blueprint, there may be a lag of some years before we see Amazon’s subscription service/loyalty program, Prime, in Australia. Free two day, or even same day shipping is a core benefit and major incentive of a Prime subscription and is not something Amazon can readily deliver in low density markets such as Canada and Australia. Amazon will need to have its footprint in place to overcome the distribution challenge. That said, the pace at which Amazon puts that footprint in place could surprise Australian retailers. UBS notes that in Canada, Amazon was shipping just six weeks after signing a lease at an existing distribution centre. 4.    Retail’s rapid response According to UBS, Amazon’s consumer business model is built around three pillars: Best price Leading range (Amazon has over 400 million products on its US website) Superior service that exceeds customer expectations via online service, range, value and fulfilment As Amazon ramped up its operations in Canada, Canadian retailers have scrambled to catch up or keep up, investing in online shopping platforms and distribution centres, piloting loyalty programs and media partnerships. Amazon will drive Australian retailers in much the same way. As was the case in Canada, Australia’s retail sector must improve to compete with Amazon. Adaptive and innovative retailers will survive and thrive. The proviso, of course, is that retailers focus on strategies to transform their business. This may involve the following: improving shopper experience and providing customers with the ability to seamlessly switch between in-store and online shopping  achieving the right balance of traditional and online trading  reassessing their pricing structure and discounting strategy  tightening controls to reduce operating costs, improve efficiency and optimise (physical and online) store performance  collecting, analysing and translating customer data into effective loyalty programs improving inventory management  renegotiating leases to reflect market conditions and achieve flexibility in their geographic footprint. The ‘Canadian approach’ would almost represent a best case scenario for Australia’s retail sector. A word of warning, however. Amazon’s epic success has not been achieved by conforming. Retailers would be wise to hope for the best, but prepare for a strategic surprise. Kate Warwick is senior managing director and head of retail and consumer products at FTI Consulting