The Amazon effect

Amazon’s rising power is clear from the raft of media coverage warning of Amazon’s Australian expansion plans, expected later this year. It has been reported that “Amazon is coming to Australia and wants to destroy Australian retailers”. Responding to the Amazon threat, the founder of one of Australia’s biggest retailers, Harvey Norman, has vowed to fend it off with superior service and low prices. Others have remarked on Jeff Bezos’ controversial empire and his plans for an “Australian invasion”, flagging retail job losses as the main concern. Wesfarmers chief executive Richard Goyder, who oversees Coles, Kmart and Target, warned last year that Amazon will "eat all our breakfasts, lunches and dinners" unless Australian retailers become more innovative and competitive [1].

Amazon is expected to open distribution and performance centres in every Australian state in September 2017 (which will have both general and fresh items ready to go on launch) and put physical stores on the ground. Amazon is rumoured to undercut local prices by 30%. With Jeff Bezos, known for “Your margin is my opportunity”, we can probably expect reality to live up to the hype.

These are interesting times for Australia’s A$300 billion retail market. Australian online retail sales topped A$20 billion in 2016 with year on year online spend growing at 13% [2]. Importantly, online grocery sales, dominated by Coles and Woolworths, rose 9.3% year on year in 2016, and now represent 17.9% of online spending in Australia [3]. While some argue that online shopping hasn’t yet taken Australians by storm and so Amazon’s odds of success here are limited, analysts view the “Amazon effect” as significant and Amazon apparently sees enormous potential in Australia because it believes its prices are too high [4].

Most Australian commentators have praised Amazon’s arrival Down Under, branding it a game changer that would mark a significant disruption for Australian retailers with an expected erosion of profit margins likely for many. But low prices aren’t the only promise. Amazon is famous for its ruthlessly efficient automated distribution system, with Amazon Prime offering intra-day shipping options such as a two-hour delivery. Amazon’s new local warehouses will be another major disruptive force for Australians accustomed to long waiting times for online shopping.

A lot can be gauged from Amazon’s impact on US and UK retail. US retail executives believe that bricks and mortar retailers are heading for a "slow moving train wreck" [5], noting that the e-commerce behemoth is destroying US traditional retailers and forecasting that the transformational shift to time-saving and convenient online shopping with Amazon would cause shopping malls to become "white elephants", kill department stores and cut the values of commercial real estate. Macy’s, Sears and Kmart have recently announced store closures, redundancies and share price falls. Meanwhile, Amazon had its "best ever" holiday season, shipping more than 1 billion items worldwide. In the UK (where Amazon has been operating since 1998), analysts recall that: “Before Amazon, UK retailers were quite complacent with not a lot of focus on customer service. Customers were taken for granted. Amazon really did shake things up and show retailers what could be achieved online.”

However, the inevitable challenges brought about by the Amazon seismic shift and, more widely, the new customer-driven economy present Australian retailers with a significant opportunity for innovation and digital transformation in a market that has long been marred by excessive prices, limited competition and lack of consumer focus. As Deloitte concluded: “If Amazon isn’t on the agenda at board meetings for Australian retailers, then it should be”.  

The digital transformation challenge

But Amazon isn’t the only threat. With only 16% of the top 250 global retailers currently operating in the Australian market, more new global retailers are expected to bring their operations to our shores in 2017 [6]. Established Australian retailers need to develop strategies now to make sure they are up to the challenge.

As retail innovators know, technology is fundamental to delivering the multi-channel shopping experience that consumers increasingly demand. Most retailers’ digital transformation initiatives tend to focus on external customer engagement channels such as websites, apps and social media as well as their e-commerce experience. However,  as many retail success stories illustrate, digital transformation means changing technologies and infrastructure, shifting to the cloud, automating processes and scaling modernisation across the organisation while making painful, but necessary, cultural changes.

The Yoox-Net-a-Porter Group (YNAP), the world’s premier online luxury fashion destination and a €1.3bn business, is a first-rate example of tech driving retail. YNAP has mastered the logistical aspects of the business such as online stores management, the handling and shipping of products, digital production, payments and customer care - its warehouses are automated using RFID (Radio Frequency Identification), providing full control of inventory levels, and website photography is automated so that over 15,000 items are photographed every day.

We can also find inspiration in other retail innovators such Burberry, the British luxury fashion house, who have been on a digital transformation journey for over seven years now and taken an all encompassing approach to digital, pivoting core business strategies to account for a dramatic shift in consumer behaviour. And Nestlé, the food and drink giant, who has implemented a cohesive approach to innovation and formed a joint digital transformation team with Salesforce to establish a single data platform, enabling insights that drive better end-customer engagement. Major players such as Tesco, Procter & Gamble, Next and Starbucks are other great examples of quick adaptation and response to competitive demands.

Michael de Kare-Silver, the digital and e-commerce expert, notes that for current retail champions to survive this digital transformation era and still be leaders in 2020, change is a must but only few retailers have boldly tackled the challenge [7]:

“Yes they have their web site, yes you can buy online (though often the user experience is poor) but many have cut back on investment as they face the need to really upgrade their back-end technology to cope with and meet growing consumer demand and desire for a really good browsing and buying experience...The need for change is staring them in the face, digital technology is creating a whole new world of opportunity and ability to engage with customers in the way they want and give them the multichannel experience they crave. It does require investment, it does require change, it may need new systems, it may need new processes and ways of working, it may mean abandoning decades old ways of working...It needs transition planning and management and longer term horizons”.

What should retailers do next?

Digital technology empowers customers by providing them with more access to information, goods and services and more control of how, where and when they purchase. Amazon and other on-demand delivery options have permanently changed customer fulfillment expectations. For retailers to stay relevant, they must be able to meet the modern customer’s on-demand mindset. Retailers must seize the opportunity presented by this customer-centric world and evolve their business models and structures to drive sustainable growth.

These disruptive forces require retailers to embrace leadership, vision, long-term commitment and a customer-centric approach and apply these company-wide. Fundamentally, this means investing in the transformation of technology systems and processes to dispose of silos and deliver integrated customer planning and implementation. At its very core, modernisation requires the upskilling of people to enable companies (not just retailers) to service next generation business models. Retailers should strive to become employers of the future to attract top talent - a digital transformation initiative is also a unique training opportunity that can futureproof retailers for what lies ahead. The much needed cultural change, that underpins transformation success stories, isn’t a two-year road map, as some consultants will tell you. It is an ongoing process that requires companies to continuously educate, modernise and reimagine their customer engagement model in order to revitalise their approach and achieve meaningful change.

Retail disruption is likely to continue, in Australia and globally, and so retailers’ future transformation strategies will no doubt entail distinct pivots, a rethinking of business and operating models and the forging of partnerships with technology leaders who have the expertise to enable cultural and technological change. That will, in turn, engage and delight customers, deliver long term business value and the ability to compete on a global scale. 







[6] Deloitte’s Report: “Global Powers of Retailing 2017. The art and science of customers”.




DevOps Insights Directly to Your Inbox!

Join thousands of your peers and subscribe to our best content, news, services and events.

  • Dan Williams

    Director of Engineering, APAC

    Dan leads our APAC operation out of Melbourne as Director of Engineering. He brings a wealth of digital transformation and automation experience to the Contino team, having spent over 17 years working internationally across the financial services, retail, e-commerce and telecommunications sectors. Dan is passionate about all things DevOps and has gained deep technological and commercial expertise at leading global companies such as JP Morgan, Tibra Capital, HSBC, The Net-a-Porter Group and Sapient Global Markets, as well as at two of his own start-ups. Over the years, Dan has led a broad range of complex transformation projects and has honed his hands-on technical skills across electronic trading environments, fulfillment automation, network infrastructure and enterprise transformation consulting.

    More Articles by Dan