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Amazon Australia
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Amazon Australia – successful launch or failure?

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Background Amazon Australia

After years of speculation and rumours Amazon offered Australian customers a local Amazon warehouse service from 5th December 2017. The question many are now asking is was the launch successful or not?

Different people will use different measures for ‘success’. This blog shall focus on how customers have responded to the service. In April 2017, when Amazon announced plans to offer a local service in Australia many predicted they would ‘smash’ the local retailers, e.g. SMH. I have included local retailers results, where appropriate, to highlight whether Australian customers have changed retailers or changed buying habits, since Amazon opened the local warehouse in Australia.

Amazon Australia has a similar measure of success. This customer centric strategy is highlighted by Amazon Australia country manager, Rocco Braeuniger statement to the ABC;

“By concentrating on providing a great shopping experience and by constantly innovating on behalf of customers, we hope to earn the trust and the custom of Australian shoppers in the years to come”

Amazon Australia First Warehouse Opening

Some key points in the timeline for the first Amazon warehouse in Australia include:

20th April 2017 Amazon announced they would be opening a warehouse in Australia. The announcement stated:

“We are excited to bring thousands of new jobs to Australia, millions of dollars in additional investment, and to empower small Australian businesses through Amazon Marketplace”

3rd August 2017 Amazon announced the location for its first warehouse in Australia, in Dandenong South, Victoria. (Reuters)

23rd November 2017 ‘soft launch’ of Amazon Australia local warehouse. The service was limited to a small number of customers at first. (Business Insider)

5th December 2017 Amazon first warehouse in Australia was open for business for all potential customers. (Reuters)

The major criticism of Amazon Australia, during this initial pre-launch phase, was a lack of communication. There were conflicting media reports that the local service would be available from September, October or November. For example, ‘When Will Amazon Launch for Real?’, highlights the confusion about when the service would be available. Then other articles, e.g. ‘failure to launch’ highlighted this confusion had upset potential Amazon Australia customers. A couple of tweets highlighting customer frustration about the ‘soft launch’ in November 2017 included:

It’s 3pm why hasn’t Amazon Australia opened for my convenience? #amazonaustralia #amazon #shopping

— Fearless Friend (@newcastleboyy) November 23, 2017

This negative feedback strongly suggests Amazon Australia mishandled the pre-launch of their local warehouse in Australia. Simply put they did not engage with their potential customers to keep them informed about the launch date and details.

Amazon Australia Launch Day

There are conflicting reports about the success of the first day sales.

Firstly, there were many negative reports suggesting Amazon had not met customers expectations. Lifehacker detailed 6 things that they hated about the launch and a common theme in other articles was that prices were not as low as hoped, e.g. news.com.au. A couple of tweets that represents customers frustration:

So @AmazonAustralia is here, finally. Some prices appear cheaper than other competitors, however I’d wait a bit longer for the price wars to start before buying most items. #amazonaustralia

— Jake Smethurst (@JakeSmethurst3) December 4, 2017

Analysis by SMH suggests Amazon sales in December 2017 were approximately $16 million. In comparison (for the second half of 2017) JB Hi Fi averaged online sales of $20 million a month and Kogan averaged $36 million a month. Australian total retail sales were approximately $26.25 billion during December (ABS). These numbers again suggest the Amazon Australia launch was not successful.

Statements from Amazon suggest the launch was successful. Amazon stated first day orders on Amazon.com.au were higher than for any other launch day. For example Australian country manager, Rocco Braeuniger stated:

‘From early in the day, we experienced visitor numbers that far exceeded our expectations’

Personally, I would label the launch a failure. I believe Australian consumers had high expectations due to the power of the Amazon brand. Australian consumers were used to low prices from Amazon.com (US site) and other international sites such as eBay and Amazon Australia did not deliver the same aggressive pricing into the Australian market. Other issues such as a limited range and slow delivery times vs the US site also hindered Amazons’ launch into the Australian marketplace.

FBA (fulfillment by Amazon)

February 2018 Amazon Australia launched FBA, fulfillment by Amazon. This service allows vendors to store their products in Amazons warehouse. Amazon will then pick, pack and ship the product/s to customers. The major advantages for customers is free delivery, for eligible orders over $49, and 1 to 2 day delivery times for most major cities in Australia.

Amazon Prime

June 2018 Amazon launched Amazon’s Prime service in Australia. This service allows Australian consumers to pay an annual fee and then be entitled to free delivery on Amazon orders. Orders should also be delivered in 2 days, to 90% of the population. Prime members also get other benefits such as access to Amazon Prime Video and Reading, Twitch Prime and exclusive deals. The annual price of $59 is very aggressive considering logistics costs in Australia. The cost in the US is USD $119, approx. AUD $164.

The excessive cost of logistics in Australia has been in the news again recently with Ikea customers complaining about high delivery fees for small items, e.g. news.com.au.

By offering FBA and Prime Amazon is seeking to address a major issue in Australia – logistics. Compared to other countries Australia is large with a small population and logistic costs can be significant and shipping times can be excessive. Personally, the major issue was that these services were not available at launch and I think this has led to some of the negative reviews from customers.

Amazon blocks Australian customers access to international sites

During May 2018 Amazon announced it would block Australian customers from buying product off Amazons’ overseas sites, e.g. Amazon.com in the US. The ban would commence on 1st July 2018 when the Australian governments new GST rules came into effect. The new GST rules are that all items bought online overseas and shipped to an Australian address had to pay GST. Some people have called this rule the ‘Amazon tax’.

Consumers response to this move has been negative. For example, ABC research highlighted that Australians thought Amazons Australian site had less products and was more expensive so Amazon Australia should let them shop at international sites such as Amazon.com. Others such as The Guardian reported similar negative responses from consumers.

Considering Amazon has built a very successful global brand, by using a customer centric strategy, I find this decision disappointing. Amazon Australia should put their customers first and allow them access to international sites. I understand it adds another layer of complexity to Amazons business but they are risking damaging their global brand by not putting their customers first.

Other indicators

Some other indicators suggesting that Amazon Australia has not had a successful launch include the following.

Google trends

Amazon Australia

The Google trends chart (above) highlights that since the soft launch and first warehouse opening Australians have not been googling ‘Amazon’ as much. This result suggests that Australian customers looked at the offer and then decided it was not strong enough. When a business is growing it is normal that more people will Google it. The small ‘blip’ in July was probably due to Amazon Prime Day – a major sales event for Amazon Prime customers globally that received media attention in Australia, e.g. news.com.au. Again this major sales event generated less interest than the launch suggesting Amazon Australia is struggling to engage with customers.

JB Hi Fi Annual Results

Before Amazon Australia opened their first warehouse many analysts were predicting that shoppers would switch retailers. One of the retailers analysts thought would suffer was JB Hi Fi. JB Hi Fi annual results were released this week and included JB Hi Fi Australia achieving comparable sales growth of 6.2% and online sales growing 32.1% to $209.9 million. These strong sales results suggest shoppers have not switched to Amazon.

Summation

Just this week Amazon opened its second warehouse in Moorebank, Sydney (15th August 2018). This warehouse is twice the size of the Melbourne warehouse. This highlights that Amazon is planning on major growth in Australia.

Unfortunately, Amazon Australia has not managed to successfully implement its customer centric strategy in Australia. They have failed to engage with their customers and manage their expectations. Customers have become frustrated with high prices and a limit number of products available through Amazon Australia vs Amazon.com in US. Recently customers have been frustrated again by Amazon not allowing Australian customers to purchase off international sites like Amazon.com in the US. Amazon Australia has taken some steps (FBA, Prime) to try to improve the customer satisfaction levels but it is questionable whether this has achieved much in the short term. This negative feedback suggests Amazons’ launch in Australia was not successful.

Amazon appears to be aware of the issues. Rocco Braeuniger, Australian country manager, statement to the ABC  highlights the solution:

“The result will be an ever-improving customer experience driven by the regular introduction of new products and services that we hope customers will love.”

Personally I think Amazon Australia also needs to review its pricing. The tweet below highlights the issue:

The information provided in this blog post was general in nature. If you require more information I offer a free initial consultation by completing a contact us form.

Thank you,

Tim Bowen

Author

Tim Bowen
I am a university educated, FMCG consultant, with 25 years experience in category, marketing and sales. Bowen Consulting works with our clients to maximise their long-term sales in the supermarket industry. I also am the author of Category Management 2020, Category Management is a way of thinking.

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