How businesses are funding their Amazon success
Staff, stock and delivery: Amazon requires a business investment, so how are businesses managing it?
Amazon has launched in Australia, and while it failed to live up to some customer's expectations, it's still early days for the online marketplace. The difference in features between the Australian Amazon site and those in overseas markets suggest we have a lot to look forward to – Prime, for example – and small businesses aren't letting a slightly lacklustre launch get in the way of what could be a huge online selling opportunity.
But opportunities don't come easily – or for free.
"We've fundamentally changed our business model," explains Fraser Gardner, head of digital at furniture and homewares retailer Matt Blatt. In its preparation to sell on Amazon, the retailer opened a Melbourne warehouse to optimise delivery processes and also bought its own trucks in Sydney and Melbourne.
Gardner says the business transformation is a multi-million dollar project that they've been working on for over a year. But he says it isn't all about Amazon.
"Our strategy is not only to do well on Amazon but to ensure our customers still want to come to us directly because of the quick and quality service we can provide them."
The retailer was able to self-fund the expansion from its growth, having paced the expansion over a few years.
"As cost efficiencies and profit boosts are realised from the first phases we use that to fund the others. We don’t have the ability to just throw a ton of money at a problem, it’s got to be planned and financially viable."
Finding the funds
However, not all businesses are able to go down this route due to lack of forward planning or insufficient cash flow.
Beau Bertoli, CEO of small business lender Prospa, said the launch of Amazon could create a more level playing field in Australian retail.
"More small business owners will be empowered to take their offering online with Amazon’s Marketplace," he said.
"The average amount our customers borrow is $25,000 and typically the money is used to manage cash flow and buy stock or hire additional staff. Retailers will need to consider these factors as they set up to sell on Amazon. Funds could also be used to manage cash flow during the establishment period."
While Matt Blatt has a physical as well online retail presence, this is not the case for all retailers selling on Amazon. Being online-only can make it difficult to access funding the business needs to expand their operations. However, more small business lenders such as Prospa consider online-only businesses for funding as well as those without property to attach to the loan as security.
Getting the timing right
The launch of Amazon Australia right before Christmas also brings up additional concerns for retailers as they are trying to get through an already difficult cash flow period.
"Over the holidays, retailers are focused on stocking up to fill additional orders, as well as preparing for any cash flow issues as a result of holiday closures," Bertoli said.
"Retailers may need to staff up to manage the busy Christmas period, so hiring additional staff to process orders and handle shipping is often a major seasonal expense."
Bertoli believes that this Christmas is still too early for Amazon to have any real effect in Australia.
"But," he says, "Amazon is a long-term play and eventually there will be an impact."
Matt Blatt is still in the process of listing to sell on Amazon Australia, citing a difficult onboarding process, but Gardner is also realistic about their expectations.
"We’re a growing business and are constantly looking for new channels to sell through and Amazon is perfect for that... It’s still early days in Australia but the growth in the US and UK will likely come to Australia too, so a first to market advantage is priceless."