Collision course – multinational giants vs Australian retailers (part 1)

The threat:

The recent entry of JD Sports, confirmation of Kaufland’s intent to come to Australian shores (owner of Lidl) and the announcement of the eCommerce juggernaut Amazon’s entry into Australia, is part of an ongoing wave of change for the Australian retail market. Like entrants before them, such as Costco, H&M, and Aldi, such competition is likely to fundamentally redefine the retail playing field.

The challenge:

The level of competition in the Australian market ultimately depends on how aggressively these companies enter the market. They have the financial resources to choose the speed with which they will enter and the breadth of products they will offer.

Australian retailers have traditionally competed on incremental improvements across price, availability and convenience. However, companies like Uber, Deliveroo and Airtasker have forever altered customer expectations for fulfilment. We want everything now. Australian retailers could be in for significant pain as they become caught in the middle – between global giants offering low prices, large product ranges and tiered fulfilment and the increasing number of small, niche players offering tailored products specifically targeted to their customer base.

Amazon, in particular, threatens to significantly alter the playing field for Australian retailers given its historical aggression and ability to deploy significant resources and investments for the long-term – such as drone deliveries, robotics and machine learning – which give them unique capabilities to drive continuous change.

Based on our experience, we know that where Amazon has entered new markets, the impact on local retailers has been seismic and has impacted almost all categories and channels.

Spotlight on Amazon:

There are two critical statements from Amazon that Australian retailers should be preparing to deal with:

  • “Your margin is my opportunity” – Jeff Bezos (Amazon’s CEO), highlighting his desire to disrupt the market, largely through price driven competition. Bezos is also known for his long term investments into new markets and services, rather than short term bets
  • “Our vision is to be earth’s most customer-centric company; to build a place where people can come to find and discover anything they might want to buy online” Amazon’s broad and service oriented mission statement.

These reflect Amazon’s ability to compete on traditional mass market elements of consistently having low prices, a wide breadth of product range, and an excellent customer experience. Together these manifest in significant strengths that Amazon has brought into retail, including:

  • Consistently low prices, often to the point of being the benchmark lowest price for a category
  • Having a wide and varied product range, which collects a greater share of the customer’s wallet
  • Fulfilling and delivering with industry best practice levels of reliability, across a range of customer delivery speeds which weren’t previously available for such a large retailer
  • Driving practical changes in the way retailers interact with their customers online (e.g. AI based product suggestions, dynamic pricing algorithms) and offline (e.g. Alexa and home automation).

Amazon currently imports a significant volume of products, and has recently declared its intent to establish fulfilment centres in Australia. The attention is warranted given Amazon’s ability to aggressively grow market share, and ability to invest in the long term. As a point of comparison, Amazon’s rate of revenue growth in North America (average: 28%)2 has exceeded both eCommerce (average: 17%) and Retail growth (average: 3%) (1) every year from 2009-2015 in America, whilst the international rate of revenue growth stands strong at 24.4%2 once adjusted for exchange rate fluctuations. This is all done whilst maintaining an EBIT margin around 0-3%. This is compared to Australian businesses who target much higher EBIT margins, e.g. JB-HiFi, who in 2016 reported an EBIT Margin of 5.6%2, and Harvey Norman with an EBIT of 7.3% (2).


The continuing entrance of international players into the Australian market should not be feared, but acknowledged as a function of being part of a global economy. While Amazon’s entrance is the latest in a series of many, they are expected to disrupt the retail landscape like never before.

In dealing with disruption, there are a range of proactive initiatives Australian retailers should consider, which either leverage Amazon’s strengths as an opportunity, level the playing field in some areas, or compete in a way that differentiates their offer in the eyes of the consumer. In order to continue to be competitive, Australian businesses need to recognise that they are unlikely to be the global leader in terms of price and convenience, review their position, and bring a unique value proposition to the table to continue to thrive. We outline these elements in Part 2 of this series.


  1. United States Census Bureau – E-Commerce Report Time Series
  2. Company Annual Reports

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