Amazon changing the game in Australia

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Amazon founder Jeff Bezos is now worth more than $150 billion, making him the world’s wealthiest person.

His company has changed the face of retail worldwide and with the December launch of an Australian website, will bring deep changes to the face of the Australian retail market, according to financial analysts at Morgan Stanley.

Last month, Amazon introduced its Prime service for faster delivery to Australia, which many in the industry believe is a direct response to a sales tax on internet purchases. Amazon blocked its Australian customers from ordering from U.S. and U.K. sites to avoid the internet sales tax.

The Australian government extended its 10 per cent goods and services tax (GST) to all goods bought online from overseas, effective 1 July, requiring online retailers to collect the tax. The tax was previously applicable only to overseas purchases over $1,000.

Amazon gave Australians only one month’s notice that they would lose access to its global network – sales are cut off when an Australian delivery address is entered – even though the government announced plans for the internet sales tax a year ago.

Amazon has 550 million products on its U.S. site. Rival eBay has 500-600 million third-party sellers, according to Boomerang Commerce, a California-based artificial intelligence tech firm.

The analysts at Morgan Stanley spelled out seven reasons why Amazon’s Prime service will shake up the status quo in Australia:

1. Cheap delivery costs – As it turns out, Australia Post is competitive on price with global mail distributors – which should help Amazon Prime penetrate the market.
2. High competition among couriers – In Australia’s delivery market there is intense competition, including many foreign-owned couriers. This competition will drive down costs.
3. Concentration of population – Sydney, Melbourne, and Brisbane account for 39 percent of the total population, giving Amazon a concentrated market.
4. Competitive price point – Amazon’s $59 annual fee for Prime service in Australia makes its domestic offering the cheapest of any market. Analysts figure an Australian customer would have to make only seven orders to recover their annual subscription fee.
5. Wealth per capita – Australia has a relatively high wealth per capita and a flat income distribution, which means a higher percentage of workers in the middle-income brackets. The middle 60 percent of Australian workers account for more than 50 percent of total income – more than the U.S. and the UK.
6. Product pricing – The analysts said products sold on Amazon Australia are generally as cheap or cheaper than domestic competitors. However, products sold by a third party on Amazon’s domestic marketplace platform are still “substantially more expensive.”
7. Geo-blocking – Following the federal government’s decision to enforce GST on foreign purchases over $1,000, Amazon banned Australian consumers from buying items on its U.S. and UK sites.

Shares of electronics retailer Harvey Norman Holdings are down 17 per cent and shares of smaller JB Hi-Fi are down five per cent.

According to Morgan Stanley, among Australian retailers, Super Retail and JB Hi-Fi are well organised, competitively priced and reasonably placed to defend their ground and withstand the Amazon invasion.

Experts say Amazon is planning to build a fulfillment centre in Brisbane, Sydney, or Melbourne to support its expansion.

Cate Hull is the CEO of FreightExchange, a freight and logistics management firm based in Sydney