Beverley Head
November 8, 2017

Retailers wonder at Amazon’s bite

The Establishment

Retailers wonder at Amazon’s bite

Russell Zimmerman: Retailers still coming to grips with Amazon threat

In October, Jeff Bezos, Amazon founder and CEO topped Bloomberg’s Billionaires Index; Bezos’ ascendancy and the retail juggernaut’s imminent arrival in Australia are creating a conundrum for the Australian Retail Association’s Russell Zimmerman.

The executive director of the ARA, Mr Zimmerman acknowledged that “it is very difficult to know how to deal with Amazon at this point in time.

"That said, we have had a number of retailers come to us and say ‘we have product that we want to put into Amazon, that we want Amazon to use as its own label product’.

“Fifty per cent of all Amazon sales come from the marketplace and they want to engage with the Amazon marketplace the same way they do with ebay.

“Retailers are thinking about it – whether they are really prepared for it is a far more difficult question especially when you are not quite sure what the shockwaves might be.

“It’s a bit like being in the surf and you know the wave is coming - you're not quite sure how you're going to react to it - but you know you're damn well going to try and get out on the other side,” he said.

But will an online duckdive be enough?

Australia’s $300 billion retail industry accounts for 5 per cent of the national economy and employs more than one in 10 Australian workers.

Mr Zimmerman said that there are 140,000 individual retailers operating in the country from large chains to family owned single stores.

The bricks and mortar world of retailing is however being challenged online. According to the NAB’s most recent online retail sales index in the 12 months to August 2017 Australian consumers spent $23.28 billion online.

To set that in context, Jeff Bezos’ personal wealth soared in October on the back of a 34 per cent surge in quarterly revenues to $US43.7 billion, although of course of some of that came from cloud service sales through its Amazon Web Services subsidiary.

Australian online spending still represents only about 7.5 per cent of the spending at traditional retailers – but in the year to the end of August the growth online was 10.3 per cent.

It’s prompting a rethink from local players. Myer for example in its last financial quarter saw sales overall fall 2.8 per cent even though online sales soared 67 per cent compared to a year ago. Click and collect represented 22 per cent of orders and the company is upping its focus on online and omni channel retailing.

While the ARA and its 7,500 members (representing 60,000 shopfronts) might not know exactly how to ride out the looming Amazon tsunami, Mr Zimmerman is clear that retail needs to innovate - but he stressed that it always had.

“Retail looks different to what it looked like ten years ago and retail ten years ago looked different to what it did ten years earlier.

“I don't know if it will be 12 months but I think if you project forward next five to ten years retail is going to change.”

He painted a picture of fashion retailers holding limited stock in store where people could try on garments in the right size, select a colour, order online and have the item Ubered to the office or home.

Meanwhile smart supermarket trolleys linked to smartphone apps would automatically recognise the consumer, note the items in the trolley, make suggestions based on what was already in the trolley and past shopping patterns, and then complete online payment for the goods in the trolley as the shopper leaves the store.

The rise of online retail will prompt additional innovation. “Never in my lifetime have I seen so much available from overseas, if I don’t like what I can get in Australia I can look online and in most cases get it into Australia and at the same cost or less.”

He said that the impost of GST on online sales to Australia from July next year might offer some relief to local retailers – but that online’s rise was unstoppable.

“At the moment in Australia around 7 per cent of business is done online. If you go to the US or UK that figure is probably 12-13 per cent. (In five years) retailing will be different - but online will be interesting.”

When it comes to other emerging retail technology Mr Zimmerman acknowledged that “I haven’t bent my mind much” to the advent of ambient retail or algorithmic pricing where a consumer might use in home electronics such as Amazon Alexa or Echo or Google Home to order products by function (batteries) rather than brand (Duracell) and where prices are set using artificially intelligent machine learning platforms.

The latter however he sees largely as a route to lower prices and specials to benefit the consumer.

It’s certainly a very sanguine position from the ARA’s leadership towards accelerating innovation in retail. But Mr Zimmerman said Australian retailers faced a raft of other challenges.

“The biggest concern we have at the moment is that as an industry we are non-competitive compared to our overseas counterparts. If I was a TV cameraman and wanted to buy a camera - it would probably be almost cheaper to get on a plane go to New York to pick up the camera than buy it here in Australia.

“The cost of rent in Australia is extreme. The cost of labour is very high – in the UK it is $13-15 (an hour), US $8-10, New Zealand has a $13.50 starting wage – our wages start around $20 an hour.

“The cost of doing business in Australia is very very high.

“There is a revolution in retail...and on top of that we have a population of only 24 million. Will we be able to compete in a world landscape when we are not manufacturing products in Australia, when rents, wages, and the cost of doing business are more in Australia than in the US?”

It’s a good question but one the ARA cannot yet answer.

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