Rebel didn’t score quite as high, but did well enough: Across the 16 products Morgan Stanley compared prices on, Amazon was on average 14 per cent more expensive than the Aussie sporting equipment chain.
It appears that generally speaking products sold directly by Amazon – rather than by third-party resellers using the Amazon site – are cheaper.
Morgan Stanley estimates the range of products offered on Amazon’s subscription service Prime (which ships products directly from its own warehouses) has increased by more than half since it was launched last August – but there is a catch: The majority of the Prime direct products appear to be coming out of the US, with long delivery times and minimum order conditions.
This can mitigate their appeal for Australian consumers.
The cheapest and most attractive Amazon products are those that come from its own warehouses in Australia. But the range within this category seems to still be quite limited.
Morgan Stanley suggests this may be the result of insufficient warehouse capacity. Yet the other factor inhibiting Amazon’s growth in Australia could be the reluctance of third-party sellers to climb on board, the investment bank says in its report.
“Suppliers will have learnt from international experience […] By selling to Amazon, brands give the company access to the sales data of their products. Amazon can quickly identify top sellers, examine why customers like the product by mining customer reviews, manufacture its own private label version of that item, undercut on price, and then place it at the top of the search results.”
Local companies “will be thinking carefully about how they want to work with Amazon in Australia, particularly given the strong market positions of incumbent brick and mortar retailers,” the report went on. “This could limit Amazon’s range expansion in Australia.”
Amazon’s third-party Marketplace for online sellers has been popular with smaller retailers as it provides them with an additional sales channel and higher exposure.
Category killers fight back
But Australia is marked by a high degree of industry concentration in some major discretionary categories like home improvement, electronics and sporting goods.
Big chains like JB Hi-Fi, Bunnings, Harvey Norman, Officeworks and Rebel dominate the market in their respective industry segments. Together they have billions invested in bricks and mortar stores, and the financial capacity to plough capital into their own online sites.
Looking at groceries, Amazon scores better on pricing when compared with Australia’s large supermarket chains. The online giant launched Amazon pantry food and drinks in October 2018 in addition to the everyday household products it stocked when it entered the market here.
On the five grocery items Morgan Stanley tracked, Amazon was an average of 13 per cent cheaper , while on the pantry items it undercut on price by a less alarming 1 per cent.
But the big supermarkets are mounting their own defense. This week Coles announced a new technology partner to overhaul its online delivery and achieve better service with a bigger range and improved delivery options. Woolworths is said to be looking at taking its own large strides in online grocery delivery systems, but has not yet announced the costing or what technology it will use.
And while Amazon scores well on price, its range of supermarket products is still limited.
There’s a bigger threat
It seems that right now, a bigger threat to Australian retailing than the online shopping behemoth is the reluctance of consumers to spend at all amid a general lack of confidence in the strength of the economy.
Figures produced this week by the Australian Bureau of Statistics illustrate why: Household wealth in the three months to the end of December fell by an alarming $257 billion – mostly on the back of a slump in property prices and a 10 per cent dive in the sharemarket during that period.
While the sharemarket has staged a recovery, the value of houses just keeps falling.
Still, retailers can’t discount the fact that Amazon could mount another surge and further damage the local industry’s defences.
This global company is a force that should never be underestimated.
Elizabeth Knight comments on companies, markets and the economy.