Amazon & New Zealand

How is New Zealand dealing with the competitive thread of an Amazon market entry?

Coming to Australia

Amazon’s first warehouse in Australia opened today. It will be a while yet before it is delighting customers and tormenting retailers with a vast selection, seamless user experience, and lower prices. But not too long.

Australian retailers have the sophistication, size, and awareness of what Amazon’s arrival means. Much of 2017 has been spent cleaning up their omnichannel act and hand-wringing over what is to come. And with good reason: retail is feeling it.

Amazon Effect

Many other sectors of the economy are agog at how technology will disrupt them (healthcare, for example), yet their industry leaders suffer little or no adverse valuations by shareholders and plan for minimal market share losses as a result of the new tech. Most industry leaders get to talk at conferences about tech disruption without feeling it. Not so for retail.

Brick and mortar sales have been flat for years, and contracting in many previously expensive malls on a year-on-year per square meter basis. Yet E-Commerce is steadily growing at 20% year-on-year worldwide. For all that amazing growth, they are just scratching the surface of underlying demand. In the USA, web sales account for 10% of retail compared to 7.5% in New Zealand. Both are expected to double in five years.

Retailers grappling with the fast conversion to this new channel are also grappling with its titans: Amazon and Alibaba. 50% of web retail in the USA last year was with Amazon. These two companies bring incredible scale, capital investment, innovation, and ultimately competitive pressure to retailers.

Amazon broadens the arena of competition. It is not just what SKUs are available and at what price. To match Amazon, retailers need to offer consumer financing, bundled digital and physical goods (think physical kindles + eBooks), and advanced logistics services to effect final mile delivery.

Amazon Prime Delivery Coverage

The Impact on New Zealand

But it is New Zealand that should be paying attention now. I’ve spent 18 months fully immersed in the New Zealand transport sector, and I can say it is not ready for Amazon. In their home turf, Amazon counts a third of households as members of their Prime club, entitling them to logistical services such as free delivery regardless of checkout basket size. They deliver in two-hours to about 25% of the population. They use sophisticated strategies in echelon warehousing, predictive inventory positioning, and heterogeneous delivery options (i.e. owned fleet, contracted fleet, and a swarm of gig-economy drivers).

What does the Auckland metro area look like to a company like that? Like an apple hanging low on a tree. I predict Amazon will offer free next-day delivery to the Auckland metro area within 18 months of starting Australian operations. And I give 2:1 odds that within 24 months they have their own logistics operation executing it.

The upshot is simple: you used to leave work early to stand in a shop somewhere, queued for the cash register. Now, you’ll get to do more of what you enjoy, potentially spending less money anyway, and have more selection along the way. Whether or not that all happens through one colossus or a tapestry of viable competitors is up in the air for a little while longer. It’s your turn to move, New Zealand.

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