Global E-Commerce Giant, Amazon, is Positioned to Disrupt the Australian Economy

Posted: October 2017

By: Jordan Helton

Amazon is finally coming to Australia. Amazon is a US based E-commerce giant and the largest Internet company in the world. In fiscal year 2016, they had revenue of $136 Billion USD, easily beating second and third place Alphabet Inc. and JD.com who had revenues of $90 Billion USD and $37.5 Billion USD respectively. Amazon owns 50% of all e-commerce purchases in the US with roughly 300 million active users. They are currently the fourth largest company in the world in terms of market cap, and are expected by many analysts to be the first company in the world to reach a market cap of $1 Trillion USD.

While on paper, it is easy to see that Amazon is an extremely successful company, it is not easy to understand why. Amazon does many things well, but without a doubt, what gives Amazon an advantage over its competitors boils down to one thing: big data. In recent years, big data has been the focus of many of the largest companies in the world. Among them, Amazon is the king, with companies like Alphabet Inc. and Alibaba being unable match their data utilization. Amazon has been collecting consumer data for almost 20 years, many years longer than its competitors. They use this data to create unique customer experiences on its platform for every individual visitor. Amazon also has Amazon Web Services, the largest cloud based service provider in the world with a market share of 44.2% of the Infrastructure-as-a-service market as of last year. To put that into perspective, in the IAAS market, Microsoft is second to Amazon with a market share of 7.1%. While many of Amazon’s competitors are expanding at a faster rate than AWS, it will be most likely be many years before Amazon has any real competition.

Talks of Amazon’s arrival down under have been brewing for over a year, but recent reports from Citi analysts, citing talks with local suppliers, put the time frame on Amazon's arrival within the coming month (Oct. 2017). Amazon has been investing large amounts of capital in order to make this expansion to the Australian market successful, putting themselves in perfect position to completely change the landscape of retail and e-commerce here in Australia.

Doesn’t Australia already have access to Amazon?

While Australians have for years had access to Amazon, with recent numbers putting the amount Australians spent on the website last year at somewhere in the range of $500 to $700 million, they have not had access to many of the benefits that those using Amazon in the US or UK have. Previously, many products were either unavailable for purchase outside of the US and UK, or would incur large international shipping fees that made shopping on Amazon less beneficial. With their expansion to Australia, Amazon plans to bring over its Amazon Prime program and all its benefits. Many of the previous local media and news reports that talk about Amazon Prime do not understand or at the very least, understate, the value that Amazon Prime brings to its customers. Amazon Prime is much of the reason why Amazon has been able to garner a cult-like following in the US and UK. Amazon Prime offers things such as a streaming platform for movies and music amongst many others. However, the most important benefit of Prime is the guaranteed free 2 day shipping. Prime Now is also offered in larger cities which allows for same day, or even 1 hour shipping at the cost of a small annual fee. This two day shipping option was a game changer in the US, and if it is indeed two days in Australia, will most likely see Amazon becoming very successful here as well.

What will the arrival of Amazon do to the Australian retail market?

Massive changes to the Australian retail landscape are in store once Amazon fully hits the ground here. For consumers, the arrival of Amazon can only be seen as a net gain. More competition will drive down prices, whether that be at current local retailers, or the reported 30% price cut that Amazon plans to do at launch on all of their products. All in all, consumers should be excited for lower prices, better shipping options, improved focus on customer service, and the availability of a wider range of products.

For retailers, the arrival of Amazon may be an opportunity as well a sign of the end. Many in the Australian retail community are not afraid of Amazon's arrival, citing Australians love of experiences at brick and mortar stores, as well as their hate of large overseas companies coming here. However, as is the case in the US and UK , those who underestimate Amazon will inevitably pay the price. Amazon has completely shaped the retail space in both the US and UK, pushing some of the largest companies in the world, like Macy's and Sears, close to bankruptcy. Amazon has shown in the past that they are willing to sacrifice profits in order to drive away the competition, offering many products at practically predatory pricing. Many local Australian retailers will not be ready for this aggression and will find themselves fighting just to stay alive.

However, the arrival of Amazon could also be a saving grace for many Australian retailers. Amazon offers partnerships to companies that allows them to sell their products on Amazon’s site at the cost of royalties. This opportunity can put many retailers at a clear advantage over their competition as Amazon inevitably grows here down under. One of the biggest advantages of partnering with Amazon is having access to their vast pool of consumer data. This allows retailers to reach customers they would never have had access to. However, this partnership only further increases Amazon’s influence as it allows them to reach and collect even more consumer data, keeping them further ahead of their competition.

As an investor, how will Amazon affect me?

Amazon is set to shake up the world of retail and e-commerce in Australia. As an investor, this presents many opportunities. Expansion of Amazon’s reach could do wonders for Amazon’s stock price on the NYSE. Amazon(AMZN) has had a solid upward trend the past two years, and looks to be in a strong buy as a longterm investment, with many analysts expecting it to be the first company to reach a $1 trillion dollar valuation in the future. Recently, AMZN has been performing very well, with the recent acquisition in the US of Whole Foods Market Inc. creating a momentary jump in AMZN’s stock price allowing founder Jeff Bezos to pass Bill Gates as the richest man in the world for a day.

An analysis done by Credit Suisse on Amazon’s impact in the Australian retail market has shown that even at the smallest estimated impact, sales from many of the largest retailers in Australia will take a hit as seen in the figure below. While some parts of the retail sector, namely electronics and household goods, will take a larger hit, none will be safe.

With Amazon’s large capital backing and their previous track record, it is difficult to imagine a world where Amazon is not successful in their expansion to Australia. To what extent they are successful will be determined by both consumers and retailers alike. With so many differing opinions currently and much uncertainty among analysts and experts, the best course of action may be to sit back and let the dust settle before moving in to take what return you can. Only time will tell, but I would not take Amazon’s arrival in Australia lightly, not when everything they have touched so far has turned to gold.