Many words have been written about the timing of Amazon’s Australian launch, with constant speculation and misinformation about the date. In coming years, the launch date will be nothing but a footnote. What really matters is how to respond to Amazon and, on this, there is much well-intentioned but unhelpful advice. Unhelpful because many commentators are now downplaying Amazon as “just another competitor” – when in fact the retail marketplace is about to be transformed. For those who will compete with Amazon, following that advice could be the modern-day equivalent of launching a cavalry charge towards soldiers armed with machine guns.
My advice is to take a fundamental look at your online operating model.
Why Amazon is different and not “just another competitor”
To assess Amazon’s likely impact, it helps to understand why Amazon is different and not “just another competitor”. Let me explain, by illustrating a framework based on two key elements of online retail strategy – product range and delivery offer (see matrix below).
A framework for online retail operating models
The horizontal axis categorises an online retailer according to its range:
- A “niche” range is based on a curated selection of products or a differentiated service.
- A “category” range is based around one category (or a small number of related categories).
- An “everything” range is made up of products from several unrelated categories.
The vertical axis categorises an online retailer according to its delivery model:
- “Consolidated” delivery is when the consumer normally receives multiple products in one delivery, for example Amazon Prime.
- “Split” delivery is when the consumer receives several deliveries after ordering different products, for example eBay.
To illustrate with real-life examples, let’s assume that by 2020 Amazon in Melbourne and Sydney offers a similar range and fulfilment model to Amazon in the UK right now. In the matrix, Amazon would sit in the top-right quadrant, offering products from almost every category (including fresh) in one consolidated delivery. For the consumer, this will be more convenient and cheaper than receiving multiple deliveries.
If we look at the current Australian market, we see online retailers in every quadrant except the top right. Only those operating a “niche” strategy, in my opinion, will be in the “blue ocean” and able to stand up in the long-term against Amazon’s consolidated / everything strategy. Everyone else will be competing in the “red ocean” of a market dominated by Amazon - unless they adapt their models. Here are some examples.
1. “Niche” retailers
Niche players target a specific segment with a differentiated service or range. An example is Appliances Online which offers an end-to-end service for white goods, including installation. Strong niche retailers have least to fear from Amazon’s arrival because Amazon is unlikely to seek to compete head-on. Amazon will sell white goods, but it will struggle to match Appliances Online’s exceptional customer proposition and product knowledge, built up over years of experience.
2. “Category” retailers
Category retailers make up most of the online market and focus on one category (or a few related categories). Their challenge is that Amazon will likely match their range but also offer consumers consolidated delivery with the rest of their shopping. If I currently buy groceries from Woolworths Online and clothes from The Iconic through two separate deliveries, then Amazon can make my life simpler by delivering everything in one go. In the long-term, my prediction is that these retailers will either need to become niche players, so they are not competing directly with Amazon, or partner with other retailers to offer a consolidated delivery option.
3. “Everything” retailers
The everything retailers are at greatest risk but also have the greatest opportunity. The risk will eventuate if their business model stays unchanged, because Amazon will provide a superior offer – a similar range but ordered and delivered together.
The opportunity comes if these players can find a way to consolidate fulfilment. eBay is the longest-standing member of this camp and will find it challenging to shift to consolidated fulfilment. Some others have more flexibility:
- Catch Group is enjoying fantastic success with its new marketplace and already possesses Australia’s most sophisticated pick and pack operation.
- Shipster, Australia Post’s innovative multi-retailer subscription service, could offer an alternative to Amazon Prime, if it can transition to shared fulfilment.
- Wesfarmers and Woolworths could match Amazon’s range across their portfolio of brands. The big challenge will be shifting their business model (and culture) to enable collaboration.
Within a few years Amazon in Australia will have a much stronger hand than most Australian online retailers, if the latter have not found a way to consolidate deliveries and extend their range. We see from recent moves by Catch, Shipster, and new developments in Wesfarmers’ and Woolworths’ brands, that some of Amazon’s Australian competitors are now moving in the right direction.
For leaders keen to truly understand Amazon and its likely impact, check out my one-day workshop Are you ready for Amazon? We have public workshops coming up in Melbourne on 5th December and Sydney on 6th December and I also offer in-house workshops and executive briefings for teams.