Amazon is set to arrive at the best worst time possible
After falling into a rut, an industry's going to change fast.
Amazon is coming to Australia in a tumultuous time. The online retail giant is expected to open its digital doors this month or the next, which means it's going to be coming at either the best or the worst possible time, depending on which side of the fence you're on.
Right now, Australia's retail scene is stuck in a rut. Three interconnected issues have it bogged down, which are in turn driving rapid change.
"I would describe [it] as a leaky bucket situation." said James Stewart, retail practice leader at Ferrier Hodgson. "They don't have one clear thing to fix."
Household costs are up, so spending is down
2017 has seen Australian households slammed by cost problems, including energy price hikes, rising mortgage stress and the fourth highest household debt of any country in the world.
This has manifested as a drop in national retail spending, an emphasis on low prices online and more stress for embattled retailers, many of whom have their own energy price hikes, property expenses and debt to worry about.
Online shopping is here in force
Online shopping is changing the retail landscape around the world, but logistical issues have kept Australia relatively insulated so far. It was only a matter of time until that started changing though.
The Internet lets buyers compare prices and call the shots more easily. Squeezed by household expenses, Australians are mostly calling for low prices on anything they buy.
It's been going on for a while with many Australian businesses closing in the last few years after decades in operation. For example, Borders and Angus & Robertson bookstores were early victims, shuttering in 2011 after losing to digital media and e-readers.
A growing emphasis on price among consumers means the winning retailers are those who can charge less. This favours brands with sleek, low-cost supply chains and low prices. That generally means big names and high volume, with a strong omni-channel network built on a combination of online and brick and mortar storefronts.
In many cases, that means established overseas brands or new disruptors.
"Customers have the wheel in the new retail milieu and they know it," said Paul Greenberg, executive director of NORA, the online and new retailing industry body. "We will also see new businesses growing at an unprecedented rate."
Even as Australian retailers are closing for good, new brands are opening their doors. Foreign fashion chains H&M and UNIQLO, for example, have been opening physical stores around the country to complement their online presence.
Elsewhere, falling margins are raising prices
As stores close and business landlord portfolios shrink, they're forced to raise prices on those that remain. This gets into a vicious cycle of even more stores closing and an emphasis on retailers who can afford to stay. In this case, that often means big names with low overhead and a robust online presence.
Energy prices have already worked themselves into a similar cycle. The rise of renewables is taking a big bite out of energy company profits and leading to price hikes across the board to compensate. These price hikes then drive even more homes and businesses towards their own renewable systems. This eats into energy company profit margins further and drives prices higher still.
Rising energy prices are hitting small businesses especially hard and are also one of the primary household expenses, so they're feeding into the issue from both the retailer and the consumer side.
What this means for Amazon and for retailers
These three issues, and others, are feeding each other. This puts some retailers in a rut but drives change elsewhere.
As such, Amazon is coming at a good time for shoppers and for itself, but it might be a bad time for the already-embattled retail industry. At the end of the day, however, it's worth remembering that Amazon is just one brand among many that's coming to Australia for a slice of the pie. An industry in a rut is ripe for disruption. If it wasn't Amazon, it would be someone else.
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