IBISWorld: Amazon must adapt to local market

Due to size and dispersed population.

With the entry of Amazon, the online shopping industry in Australia is expected to grow at an annualised 13.5% over the five years to 2017-18, to reach $20.1 billion. Although Amazon has largely kept its plans for the Australian market under wraps, IBISWorld expects Amazon will be prepared to make initial losses to help it gain market share within Australia as quickly as possible.

IBISWorld senior industry analyst, Kim Do said, “Amazon’s arrival into the Australian market is set to shake up the retail sector. The company intends to challenge domestic retail prices by offering items for 30% less than domestic retailers. This is expected to appeal to price-conscious Australian consumers, and is likely to affect local retailers that have found it difficult to adjust to a shift in consumer spending behaviour over the past five years.”

“The company is expected to focus on providing consumers with low prices, a diverse product range and fast delivery. However, to be successful in Australia, Amazon’s current business model will need to be adapted to the Australian market. For example, Australia’s large geographical size and dispersed population will lead to higher distribution costs compared with Amazon’s home market in the United States. This is likely to limit the company’s ability to offer Amazon Prime Shipping services in the short to medium term.”

IBISWorld believes department stores and electronic goods retailers are expected to be the hardest hit by Amazon’s arrival. IBISWorld’s data shows department stores are already struggling to attract consumer demand, with industry revenue expected to decline by an annualised 0.9% over the five years through 2017-18.

“Technology products are anticipated to be the highest selling category for Amazon, which will disrupt the electronic goods industry. Australian consumers are particularly price savvy when it comes to electronic goods, and will often compare prices across multiple retailers to find the best value. As a result, Amazon is expected to take market share away from local electronic goods retailers such as JB Hi-Fi and Harvey Norman,” Do said.

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