Amazon: Bring it on
Written by Luke White | April 2017
Businesses can be built a lot quicker in 21st century economies, where change operates on a daily basis. A significant change which has fundamentally disrupted traditional business operating models over the last few decades is the innovation of ecommerce channels and digitisation.
Now that Amazon has officially announced that it will be entering the Australian market with its retail offering, debates around the good, bad and the ugly of Australian retailers will reach fever-pitch as analysts and business leaders try to predict the impact of the online giant’s entry. Part of this discussion includes current online retailers in Australia and how Amazon will impact on their bottom lines.
One online retailer who is not threatened by Amazon’s arrival is Kogan, the online marketplace that was originally built around the product offering of private label televisions.
The company was born when Ruslan Kogan, not wanting to have to pay full price for a high-end television, realised that he could source products direct from the manufacturer, sell direct to the consumer, and cut out all the middle men – winning back a heap of margin.
Fast forward just over ten years, and Kogan is now an established innovative online retailer, continually diversifying its product offering and turning the screws on traditional business models including bricks-and-mortar stores. In 2016 it listed on the ASX and boasts over $211m in net revenue, up 5.4% on the prior year.
So why is Kogan excited by Amazon’s potential entry?
Even though Amazon is often labelled a “killer” when entering new markets, Ruslan Kogan has a different (read: optimistic) point of view.
Kogan highlights that if you look at other markets, for example the UK where Amazon entered 20 years ago, they have a full product offering and multiple distribution centres and a small portion of the market, because the online market itself has grown significantly. Furthermore, when comparing other markets to Australia, online penetration is almost double that of the Australian market.
Kogan continues by pointing out that when Amazon enters a market, there is a change in consumer shopping behaviour and online retail trends grow, with Amazon taking a relatively small portion of that market. This also means growth for other online retail players.
So is this a good thing for all retailers?
Kogan explains that this is a good thing for retailers that have a clear and compelling offer for their consumers and a unique, strong value proposition that they live by.
History of Amazon’s entry into other markets has shown that the online giant has often helped smaller businesses to succeed by enabling them to be able to reach customers in a cost-effective way, as well as the change in consumer shopping through the increase usage of online retail channels.
However, those that are offering ‘me-too’ products at the same price with little to no brand proposition will face challenges.
Let’s not forget the customer.
Furthermore, just like Amazon, Kogan are focused on their customer.
Kogan has staff analyse online search data to keep up to date with what consumers are really interested in and their direct-to-consumer model reinforces its customer-centric approach. Outsourcing the sales function essentially hands control of your reputation over to the agent, as seen in group buying models; instead, Kogan has full control of the customer experience.
To summarise, instead of looking to the dooms day view of Amazon’s impending entry, it is more beneficial for retailers to look to the opportunities. Amazon has shown that positive growth can be achieved through having an effective business model that both suits the company as it expands globally and continues to focus on their customer experiences with the brand.
Furthermore, understanding the opportunities Amazon brings can actually help Australian retailers grow, rather than having the opposite effect. Amazon, as a channel for smaller businesses with less access to resources, can ultimately have beneficial effects for local business.
Amazon is coming. But it can be good news for local retailers. At least for those who don’t hit the panic button, but do their homework on why Amazon wins, what they bring to a new market, and how to ride the wave.