Amazon’s Australian launch has provided a much-needed shot in the arm for the $25 billion online retail market, with overall customer traffic rising 9.1 per cent since the e-commerce giant added products such as electronics, homewares, toys and clothing to its local site in December.
As Amazon and Australian omni-channel and online retailers sharpen their offerings, consumers have shifted from searching and buying on overseas sites to domestic e-commerce sites, according to research by global media and marketing company Mindshare.
Visits to Amazon sites grew 24 per cent year on year between February and April after dropping 11 per cent in 2017, while online traffic excluding Amazon rose 8.3 per cent.
However, not all Australian retailers are benefiting from the rising tide.
Local brands including Catch Group, Kogan.com, Kmart, Dan Murphys, Rebel Sport and The Iconic have enjoyed stronger web traffic. But mid-market brands such as Harvey Norman, JB Hi-Fi’s The Good Guys, Supercheap Auto, API’s Priceline, Temple & Webster, Booktopia and Cotton On have lost traffic.
Market leader eBay has also lost ground, with monthly traffic down 0.3 per cent year on year, representing 9.5 per centage points of growth despite eBay launching a range of services.
“Amazon’s arrival has coincided with a lift in online shopping as a whole – it really has prompted a fundamental step change in how people are shopping online for brands in Australia,” said Mindshare chief strategy officer Joe Lunn.
“However, not every brand has seen a boost or a benefit from the arrival of Amazon. There are still a number of brands … that are going to struggle,” Mr Lunn told a Mindshare presentation in Sydney on Tuesday.
Amazon itself also failed to live up to the pre-launch hype and Australian consumers are less excited now about its expansion than they were 12 months ago.
The biggest disappointment has been felt by consumers who previously shopped on Amazon global sites, with “excitement” dropping from 41 per cent to 28 per cent as Amazon’s local offering failed to replicate that of overseas. “Consideration” or propensity to buy fell 19 per cent to 15 per cent.
Despite this disappointment, visits to Amazon sites rose 24 per cent or 1.3 million a month year on year between February and March after dropping 11 per cent in 2017.
“So not only has Amazon seen a significant bump in audience traffic over that period but the entire category has risen in line with that – that’s a fundamental step change for online shopping in Australia,” Mr Lunn said.
He said Amazon had not convinced shoppers on its overseas sites to make the switch to the local platform and this may have prompted its decision to use changes to the goods and services tax regime next month as an excuse to stop Australian shoppers from importing products from its overseas sites.
Prime a ‘game-changer’
The launch of Amazon’s subscription-based delivery service, Amazon Prime, would be a “game-changer”, he said, and would encourage more brands to join the platform.
However, the initial impact of Prime would be muted by the fact that the bulk of products on amazon.com.au are sold by third-party sellers and are not eligible for Prime.
“From a consumer perspective, free and fast delivery is what people are looking for from a service like Prime and they’re actually willing to pay for it,” he said.
Amazon launched Prime on Tuesday, offering benefits such as free two-business-day delivery on eligible products and access to videos, e-books and gaming for $6.99 a month or $59 a year. Mindshare research suggested consumers would be willing to pay about $14 a month.
Morgan Stanley analyst Tom Kierath agreed Prime would change the game in Australia.
“The sooner-than-expected launch shows Amazon’s confidence in delivery (and) the $59 annual fee is low versus other developed countries – we think this shows Amazon’s high long-term aspirations for Australia,” Mr Kierath said.
Mr Lunn said that while Amazon’s launch had not lived up to the hype it was early days and Australian consumers and retailers needed to recognise Amazon was in for the long haul.
“This is a long-term play, they’re not going to be judging success by the first six months of their development.”
Morgan Stanley believes category killers such as JB Hi-Fi and Super Retail Group are relatively well insulated from the Amazon effect but department stores are most exposed and the market is underestimating the impact on Wesfarmers, which owns Kmart and Target.
Citigroup analyst Bryan Raymond said the impact of Prime would depend on execution.
“On paper, Amazon has competitive prices, a very wide range and attractive delivery terms. In practice, the extent of the Amazon impact will be determined by a more compelling range of first-party product and maintaining their low price position as well as executing on its two-day delivery proposition,” he said.
Eventually, however, Amazon would drive higher online penetration at less-favourable online economics for rival retailers, particularly electronics retailers JB Hi-Fi and Harvey Norman, Mr Raymond said.
According to Retail Doctor Group, one in three Australians is now shopping on amazon.com.au and one in five would consider signing up for Prime with an additional 32 per cent still deciding.