Background
Amazon Australia opened their first FC (fulfilment centre) in Australia in November 2017. Now, almost 5 years later, Amazon Australia plans to open their fifth FC by the end of 2022. This new FC (Kemp’s Creek, Sydney) will be the largest warehouse ever built in Australia (200,000 square metres) and the first Amazon Robotics FC in the Southern Hemisphere (Amazon).
Amazon Global
FY 21 Amazon sales were USD $469,822M (approx. AUD $725B). Amazon Australia is grouped under Amazon International which had USD $127,787M sales, +22% YOY. Interestingly AWS (Amazon Webservices) generated USD $62,202 sales (13% total) but generated USD $18,532M operating income (74% total). So, whilst Amazon is renowned for their e-commerce platform and logistics operation to deliver physical products, most of their profit is from providing cloud-based software solutions.
Betsy McGinn
To get a better understanding of the Amazon opportunity in Australia and overseas I spoke with Betsy McGinn, co-author ofThe Amazon Roadmap: How Innovative Brands are Reinventing the Path to Market. Before co-authoring this book and creating a specialised e-commerce consultancy, Betsy managed e-commerce channel sales, includes selling products on Amazon, for many years in the North American market.
Why is Amazon successful vs established retailers?
‘Amazon’s true superpower is the bravery to take risks, to try new things that everyone else says will fail. And sometimes they do, but more often these bold moves take Amazon to new heights. Long standing traditional companies just don’t have the same level of fearlessness and their risk aversion shows daily in our ever-evolving retail ecosystem.’
Betsy noted the well-known factors for Amazons’ success. They have developed a sophisticated logistics network including numerous warehouses plus ‘the last mile’. In the USA it is common to see Amazon delivery vans making deliveries to businesses and homes. This logistics network meets shoppers demands for fast delivery and convenience. Also, Amazon has developed a superior shopper offer by having a greater range of products available on a user-friendly platform. This offer means the 148 million Amazon Prime members are very loyal.
Interestingly Betsy explained Amazon true success was from taking risks. So rather than having ‘fact-based decision making’ based on a ‘deep dive into the data’ they would focus on how best to serve their shoppers.
Can Amazon be successful in Australia?
‘Amazon will be a success in Australia – it just may take longer than the US. The two key factors I see are consumer adoption of eCommerce … simply vast geography coupled with low population density’
Surprisingly, Betsy explained that Canada is culturally similar to the USA but had a slower rate of adoption of eCommerce vs the USA. This increased the timeframe required for Amazon to build their business in Canada. It is possible Amazon will face a similar challenge in Australia.
A unique challenge for Amazons’ success in Australia is the physical size of Australia with low population density. In major cities, such as Sydney, with higher population density Amazon will be able to offer a similar service vs the USA in the future. In the long term it will be more challenging to replicate that level of service in geographically remote locations such as Alice Springs.
Why partner with Amazon?
‘On Amazon, brands instantly have 24/7 national distribution, without the need for a retail distributor or the challenges of getting to the retail shelf.’
Betsy highlighted that Amazon offers suppliers a simpler path to market. The traditional model (manufacturer / distributor / retailer) could be expensive, time-consuming process which may result in limited distribution / sales. Betsy explained this model limits control a brand has on its growth path. Amazon offers a faster, cheaper model to maximise distribution in major countries such as Australia and the USA. Importantly this model also empowers suppliers to have greater control of their brand and growth path.
What can Australian brands do to partner with Amazon Australia?
‘It begins with deeply understanding the Amazon business model and not assuming that Amazon is the online equivalent of the retail shelf.’
Range. It is now normal to develop unique packsizes for the eCommerce channel. Many existing packsizes are designed to fit on retailers’ shelves or pallet optimization for existing supply chains. These packsizes may not maximise brand profit in eCommerce due to the different CODB (cost of doing business) and shopper demands.
Content. eCommerce is different vs physical shopping because shoppers cannot touch and feel products. This factor increases the importance of having great content to connect with shoppers. Amazon provides tools for understanding and making great content
Advertising. The larger ranges on Amazon increases competition. This increases the importance of advertising on Amazon’s platform to engage with shoppers. Suppliers need to effectively use Amazon’s advertising tools.
Operational excellence – simple mistakes, such as being out of stock, in the short term will lead to a missed sale. Amazon ranks products on your performance. So simple mistakes, such as being out of stock, will lead to Amazon decreasing your product ranking creating long-term issues.
What can Australian brands do to partner with Amazon international?
‘Understanding the differences in each international market you hope to crack is essential. Just because we think of Amazon as a global entity, does not mean there is a universal business model.’
Amazon provides a platform to connect with shoppers in many markets. The onus is on suppliers to understand each country’s laws, regulations, business practices and cultural nuances impact how business is done (Betsy).
Another factor to consider is the size of the opportunity. It can take a similar amount of time and effort to establish your range in a small market vs a larger market.
Summation
As Amazon Australia continues to invest in their local logistics infrastructure their sales shall continue to grow. Importantly their significant investment in infrastructure will also allow them to offer Australian shoppers a great service with minimal leadtimes. This has created an opportunity for Australian businesses to partner with Amazon to grow their sales also.
Thank you to Betsy McGinn for sharing her insights on how best to partner with Amazon. If you want more info you can buy her book, The Amazon Roadmap: How Innovative Brands are Reinventing the Path to Market, reach out to her via LinkedIn or attend one of her masterclasses.
The information provided in this blog post was general in nature. If you require more information I offer a free initial consultation. Contact Details .
