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Can Australian retailers survive in the Amazon jungle?

Wednesday, 22 Mar 2017 14:45:38 | Liz Hobday

Amazon started out as an online bookstore and is known for its popular Kindle e-readers. (Amazon)

It looks like one of the world's biggest retailers is setting up shop in Australia, promising cheaper prices, faster delivery times, and access to a greater range of products, including groceries.

Australians can, of course, already buy from Amazon, but local warehousing dramatically expands the kinds of products Amazon can deliver - and it slashes delivery times.

The company would not comment to ABC News, but it has hired more than a hundred people in Sydney for roles including logistics, IT and security.

Amazon has had a massive impact on US retail by putting market share ahead of profit, accounting for one in every two dollars spent via e-commerce in the US.

The game changer for Australia could be a service called Amazon Prime, where customers pay an annual fee of about $100 for free and fast delivery. Around 60 million US households have signed up for Amazon Prime.

The company also has a service called Amazon Now, which promises to deliver products such as groceries in under an hour.

Citi's managing director and head of consumer sector research Craig Woolford said Australian retailers need to be better prepared.

"It's hard to say that retailers in Australia are really ready for Amazon," he said.

"Amazon has disrupted a number of markets and in each case overseas we've seen retailer profitability and sales shift to Amazon."

Amazon is expected to set prices lower, but Mr Woolford said there is unlikely to be a price war.

"Amazon tends to enter a market and be quite disruptive, however they aren't in the business of losing money into perpetuity," he said.

"Their impact will depend on their traction in key categories, and their ability to secure supply."

Meanwhile, local retailers have already vowed to fight Amazon, with Harvey Norman's founder Gerry Harvey saying Amazon makes lots of sales but books no profit.

"They are the animal that went right across America devouring all before it, sending everyone broke," he warned.

Can Australian retailers survive in the Amazon jungle?

PwC Australia's national leader for digital services John Riccio said Australian retailers need to reinvent their business models to fend off the threat, and automation is key.

"It's critical not only to retail, it's critical to any industry - digitisation of processes, or elimination of processes, through automation, is a critical way to get your costs down," he said.

Amazon also has an obsessive focus on customer data, unmatched by any company in Australia, if not the world.

John Riccio said Amazon knows how each of its customers behaves.

"Data is the gold of the future, in terms of understanding behaviours, understanding needs and predicting what customers want," he said.

It is 20 years since Amazon went public at $US16 - it is now worth many times that, with a market capitalisation around $US380 billion.

Sales for the last quarter were up more than 20 per cent to more than $US40 billion.

Compare that to retail growth in Australia, which has been in single-digits for the last decade.

John Riccio said the arrival of Amazon on these shores is a question of when, not if.

"I think everyone's at the point now where they know they will be coming ... it comes down to when they actually launch which I am sure will be imminent," he added.

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