The inevitable occurs: Amazon confirms Australian launch plans

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booodl CEO and Co-Founder George Freney responds to Amazon’s announcement last week that they are bringing their full retail offering to Australia and explains what this means for Australian retail businesses.


The chatter about Amazon’s launch over the last 12 months has been steadily growing with several reports now talking deeply about the timing and impact on Australian retail businesses. Gerry Hervey has of course had his strong opinions in the news and analysts such as Craig Woolford from Citigroup have been commenting on the potential impact to retailers.

Now, the rubber has truly hit the road. Amazon has announced plans to bring their full retail offering bringing an end to all speculation. Amazon’s suite of products (Amazon Prime, Amazon Fresh, Amazon Echo and Amazon Alexa) create a new level of consumer experience that Australia will love. Thanks to Sue Mitchell at the AFR for a great story on this.

My view is that what Amazon really represents is misunderstood and that the speed and size of its impact is under-estimated.

Businesses win by creating great consumer experiences. As technology advances, consumer expectations increase and their tolerance for poor experiences decreases. Consumers love Amazon because they have created an incredibly convenient shopping experience, and expanded that into other services such as streaming video which makes their relationship with consumers even stronger.

Millions of Australian’s already love Amazon, purchasing between $700M and $1B of products from the US website and signing up to the Amazon Prime video streaming service. It’s inevitable that Australian consumers will quickly flock to a fully-fledged Amazon retail offer. While Amazon is a big win for Australian consumers for now, I am not convinced of how good it will be for them in the long-term — more on that later.

Australian retailers and shopping centres are on notice. They must quickly create a consumer experience that differentiates against Amazon and delights their customers. Using technology to create an incredible physical retail experience that leverages their locations and employees is critical to a successful response.

So why does Amazon represent such a threat to Australian retailers and shopping centres?

Amazon is playing by different rules — Amazon does not pay dividends and they are not expected to make a profit by the market. They have trained investors to be satisfied with growth. Hence, they can re-invest all their free cash flow (US $16B in 2016) into technology and infrastructure that helps create incredible consumer experiences. Contrast this with Australian retailers and shopping centres that pay out huge dividends to investors each year. Moreover, these retailers and shopping centres have generally underinvested in technology that helps create the consumer experiences that will be needed to compete with Amazon.

Amazon is so much more than a retail business — Amazon does not just sell products directly to consumer like a normal retailer. They also provide a marketplace for other retailers to sell their products, much like a digital shopping centre. Moreover, they are a leading company in logistics, cloud computing, artificial intelligence, ambient computing and video content production (TVs and Movies). If you do not know what ambient computing is, the Amazon Echo speaker that is in 8% of US households is a great example.

The sum of its parts is much less than the whole Amazon PrimeAmazon EchoAmazon Alexa, a vast product range, cheap pricing and great data about people’s shopping behaviour all work together to create a seamless and simple experience for shoppers. This video with Alec Baldwin re-ordering his favourite socks demonstrates this beautifully.

Some numbers about Amazon that demonstrate how much consumers love the experience they are creating:

  • 52% of US households have an Amazon Prime subscription — that is more than have a landline telephone
  • 8% of US households have an Amazon Echo and use Alexa — this is forecast to grow to at least 20% by 2020
  • 55% of all product searches in the US start on Amazon.com
  • 10% increase in share of wallet for Amazon once a family purchases an Amazon Echo
  • Amazon is expected to account for 50% of all online commerce in the US by 2025

Australian consumers adopt technology fast and businesses are slow — As consumers we adopt and use technology faster than nearly every other nation and much, much faster than in the US. Conversely, Australian businesses are renowned as being slow adopters of technology. I think this is because we are a touch risk averse in business and investors are addicted to franked dividends over growth, leaving less money to experiment with! Combining these together creates a consumer experience expectation vacuum into which Amazon will rapidly fill.

Why I believe the impact of Amazon will be faster and larger than most people predict

Consumers that adopt technology quickly + increasing expectations on shopping experiences (led by the incredible experience Amazon creates) + risk averse shopping centres and retailers that underinvest in innovation = the perfect environment for Amazon to grow far quicker than in other markets they have entered.

Why else should we be so worried about Amazon?

Jeff Bezos is a long-term thinker who does not consider quarterly profit requirements of investors. He has been open and upfront about this from the beginning of Amazon and it is reflected in his annual shareholder letter.

Thinking many years ahead, what does this all lead to?

This snippet from a video by Scott Galloway from L2 Inc. about Amazon gives a hint, and I think it signals future concerns for consumers, retailers, brands and shopping centres. In fact, all businesses that are directly or indirectly involved in retail will be negatively impacted by where Amazon is heading.

The key takeaway from this video is that Amazon Alexa will only let you buy Amazon home brand products…With so many people having Prime and Alexa — what does this mean for a fair marketplace?

Retailers considering joining the marketplace should consider this. Whilst it might be a great distribution channel to begin with, it provides Amazon unparalleled power in terms of the data they have about what consumers want.

As consumers are we prepared to trade away our ability to choose the brands of products we want for the convenience of using Amazon Alexa and their entire retail platform. Will prices be kept low as their market power increases? The valuation of the company reflects a need to increase retail margins at some point in the future. Amazon has trained that market to be patient and wait for the long game but eventually the market will demand a return.

The full video is well worth watching if you really want to understand Amazon.

The claim that they are creating jobs is also an interesting one when you really think about it. Sure, Amazon will employ many people, but how many people will lose their jobs? The very reason Amazon sees the Australian retail margin as an opportunity is because they get to spend less on wages for every dollar sold. My view is that jobs will be lost, along with tax revenue for our country.

How do retailers and shopping centres respond?

However, all is not lost for our retailers and shopping centres. Far from it in fact. They have key assets in respect to their physical locations, the number of Australian consumers close to them and the people that work in these locations. Putting these locations at the middle of creating consumer experiences that Amazon cannot match (for now) will provide differentiation that will keep shoppers visiting physical stores into the future.

The answer for retailers is not betting that their online retail business will save them. Amazon will always do that better than they can.

The answer for shopping centres is not betting on their own digital marketplaces or shopping list apps saving them. They do not have the budgets to create the experience consumers expect.

Creating the required consumer experience requires thinking differently about it, risk taking, considerable investment and most importantly working collectively. No single business in Australia can invest enough to compete directly with Amazon if they act alone. They need to work together and with smart and innovative technology companies that solve some of the problems on their behalf.

The technology and data required to create an incredible consumer physical retail experience is complex and expensive. There are so many complex problems that multiple parties need to solve to make it work. Westfield Labs has invested tens of millions of dollars in searchable mall technology over the last few years and are the global leaders in this space. Westfield Corporation has formed Westfield Retail Solution to focus on an operating system for the physical retail world and help all shopping centres and retailers create the required experience.

At the core of creating incredible physical retail consumer experiences is data about stores. Without comprehensive, organised data about all stores, creating the digital experiences that influence consumers in different shopping journeys to visit them will be incredibly hard.

Retailers need to:

1. Invest in their technology systems so they have accurate data about the products they sell at all their stores — this is now table stakes for survival.

2. Make sure they have a comprehensive digital presence for all stores that includes all the data about those stores. Not just product data but payments, Wi-Fi, parking etc. — all the things that can help consumers discover and decide to visit them.

3. Make sure that their digital presence has broad coverage across the different digital channels consumers are using as part of their shopping journeys. If your store is not present where consumers are when they ask questions about shopping, they will not visit the store. Things to consider are:

  • Will digital store profile pages appear when shoppers search location centrically on Google for brands, categories and products?
  • Does your digital presence allow for voice assistants like Siri and Alexa to include your store in an answer to a question about finding a store?
  • Does your digital presence allow for Chinese travellers using WeChat or Alipay to easily know that you sell what they want and accept the payment method they prefer?
  • Understand how consumer journeys are fragmenting across different channels and how to influence those consumers in the micro-moments that impact shopping journey decisions.

Shopping Centres need to:

1. Do all of the above (but in the context of a shopping centre)

2. Start thinking in the shoes of the consumer and the fact that they shop everywhere and not just in their centre. Whilst great websites, marketplaces and apps are important for the small percentage of the trade area shoppers that will use them, they are not going to solve the problem.

3. Demonstrate to the retail tenants that pay marketing contributions that they are using those funds to not only drive shopper visits today, but to ensure the vitality of the shopping centre into the future.

Why we are building Booodl

We believe that helping people to find physical stores that meet their needs, or destinations that provide interesting shopping experiences helps make physical retail thrive.

By helping people with these two consumer journeys, we help shopping centres, retailers, brands and other retail businesses influence consumers to visit their physical stores. This is great for those businesses, the people that work in them and the local communities in which these retail stores play important roles.

Since launching booodl to consumers in February 2016 and retail businesses in May of that year, booodl has:

Helped shoppers find stores around 330,000 times

Influenced around $1.5M of sales in physical retail stores

Protected the jobs of around 11 retail employees

This is a real consumer and community impact which we will continue to invest in to ensure that physical retail creates consumer experiences that Amazon cannot.


Some relevant recent media coverage:

Talking about Amazon on Sky News on Friday 21st April 2017

Article in the Sydney Morning Herald on Monday 24th April 2017

http://www.smh.com.au/business/property/amazon-to-affect-shopping-centres-20170420-gvoit8.html

If you want a deep dive on Amazon and their strategy, this is well worth a read: https://www.cbinsights.com/blog/amazon-strategy-teardown/

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