Are you ready for Amazon?

The speculation is over. Amazon is coming. It has confirmed that it will launch physical retail operations in Australia with its “Amazon Marketplace” platform for third party sellers. The question now is: how should business leaders respond? I propose to answer this question in my newsletter over the coming months. I’ll be highlighting the opportunities and challenges Amazon represents for Australian businesses of all sizes, from large conglomerates to solo entrepreneurs, and offering some practical suggestions on how to move forward.

Look beyond the headlines

Largely based on the U.S. experience, most media commentators are predicting doom for Australian retailers. Amazon has grown to such an extent that it seems unstoppable. To put its size into perspective, its stock market valuation is now over 20% greater than the four largest comparable U.S. retailers combined. Sears, until the late 1980s the U.S.’s largest retailer, hovers on the brink of bankruptcy.

Describing Amazon as “the country killer”, Nathan Lim of Morgan Stanley has a dire prediction for Australia:

While Amazon might take time to build up momentum in this country, it hangs like the sword of Damocles over corporate Australia.

Lim’s analysis may well describe a common experience with Amazon, especially for larger retailers selling third party brands. But not everyone’s outlook is so bleak - it depends on where you stand within the retail ecosystem. For some players, Amazon Marketplace represents a once-in-a-lifetime opportunity to grow sales and profits. And there are others who may not be impacted by Amazon at all. But for most, the impact will be complex, with different customer segments responding in different ways, calling for a carefully considered strategy which also draws on learning from peers overseas.

Start with customers and the big picture

Before deciding how to respond, the first step business leaders can take is to step back and understand the bigger picture in their sector – why do customers buy from them? Just as, if you’re directing a play, you stand away from the stage, not in among the actors, to see what’s really going on. Psychologists call it “gestalt” - a grasp of the wider issues – which will show you clearly where your advantage or disadvantage lies.

So how can you get a sense of the big picture and the likely impact of Amazon on your customers? You can think about it like this. Imagine you’re a retailer competing with Amazon, and they offer your customers:

  • A wider range than you can offer
  • Prices matching (or lower than) yours
  • Free next-day delivery
  • A simple online ordering process
  • No-hassle fulfilment to the doorstep

With terms like these, why would your customers continue to buy from you? If you don’t have a compelling answer, and Amazon plans to compete in your market, you’re about to live in interesting times.

But if you can see why customers would continue to shop from you, then you may have something Amazon can’t match. For example, if your customers need the help of your advice to make their purchase decision, or you’re physically located close to customers who value convenience, then you have a strategic sweet spot where you can potentially play to win.

Amazon will create opportunities too. Entrepreneurs or businesses looking to capitalise here can seek situations where customers have to travel more than a few minutes, to buy a high dollar margin product, that doesn’t require much advice. The opportunity here is to create a new business that leverages “Fulfilment by Amazon” to sell these products directly to customers.

Once you have identified Amazon’s potential to disrupt your market, the next step is to assess the different challenges it might come up against in practice; and to plan your response. These are questions I’ll be looking at in future newsletters.

I would like to thank and acknowledge Dan Roberts, CEO and co-founder of SKUvantage, for his input and advice on this article. SKUvantage offers a one-stop shop for product content – please find more information below.