We warmly thank Larry Steiner, Spectrum Photo & Digital Services, Ohio, for this ‘reality check’ on the likely impact of Amazon’s arrival as a direct retail competitor in Australia, penned in response to an article on the same subject by local academic, Associate Professor Gary Mortimer, Queensland University of Technology:
I was very engaged by Professor Mortimer’s article, Rumours of retail’s ‘Death by Amazon’ exaggerated.
However, I do find myself disagreeing with the general thrust and some specific details in his commentary. I don’t think his analysis of Amazon’s expansion is correct and the idea that retailers in markets outside the US need not fear them is a basic mistake. I am not an expert on Australian retailing, but there are lessons that apply anywhere, in my opinion.
‘Our shopping centres won’t close’: The USA is undergoing a massive shakeout of retail now that will involve closing hundreds of retail locations, layoffs (redundancies I think you call it) of tens of thousands of jobs directly because of internet retailing and more specifically Amazon, as they are by far the largest part of internet retailing. Habits have changed and Amazon is continuing to pour resources into distribution centres so that most customers will have their goods delivered in less than 48 hours – often at no charge for shipping. Amazon is testing 2-hour delivery of some high value goods now. It is true that in the grocery category Amazon has not been successful, especially because consumers want to inspect their meats, fruit and vegetables before purchase. But, in most packaged goods Amazon is coming to dominate. If a retailer’s business model depends on the old ‘buy cheap and sell dear’ idea, they are going to be in big trouble. We have empty shopping centres in the US now and the emptying of them is accelerating.
While Amazon Prime and Amazon Prime Now might work well in the US or UK, due to the large and concentrated populations in some areas, it will be more challenging in Australia. Less than half of us live in the three major capital cities and even these areas may not be economical to service in this fashion: Amazon has more than 70 distribution centres in the US and will soon have more than 100,000 employees working in them. There is a distribution center per less than 5 million persons in the US. Amazon is likely to blanket the east coast of Australia with 5-10 centres that will make 48-hour delivery fairly straightforward. The population distribution of Australia is not terribly different than the Pacific states of the US. The coastal megalopolis has a low density hinterland with a small number of widely disbursed regional centres. Canada’s population distribution is similar as well, so you can look to these areas for analysis of Amazon’s distribution capabilities. In the US, we are starting to see Amazon truck and cargo aircraft throughout the country, enhancing and speeding local freight carrier services. Small Australian outback communities may escape Amazon delivery dominance for a while, but at some point even places like Cairns or Hobart will see remarkable logistical dominance by Amazon. Amazon is willing to reinvest nearly all of their profits into ever increasing logistical infrastructure. I would expect that isolated rural area consumers have been accustomed to mail-order service for some time and Amazon is likely to completely dominate that field as well.
Finally Amazon understands that different product categories have different needs. That is why they now own the biggest camera review site – dpreview.com. They understand that folks want to ‘kick the tyres’ of things like washing machines, so you will eventually see retail Amazon Showrooms that will display this type of merchandise and will help the customer place an online order for quick delivery and installation, most likely faster than a local retailer could arrange.
There are ways to compete in the photo industry- an emphasis on services, fashion forward content, classes and clubs for camera buyers and a generally superior store experience. Those selling hard goods will have an especially difficult time, probably more challenging than even our current times. I would suggest that finding a place to stand where Amazon won’t stomp is of the utmost importance and further, time is of the essence.
– Larry Steiner