Amazon's Australian launch breaks records

Retailers have been warned against complacency following Amazon's Australian launch, which broke the technology giant's global launch-day records, even though shoppers and competitors appeared underwhelmed.

Retail experts said Amazon's launch was deliberately low-key so it could test systems and logistics before rapidly rolling out more products and services and keener prices over the next 12 to 24 months.

"One would be foolish to underestimate the potential of Amazon's business in Australia based on the current launch," said Bain and Company partner Melanie Sanders, who expects Amazon to become Australia's sixth-biggest retailer in five to 10 years with sales of $8 billion to $10 billion.

"The launch is probably a lot more strategic than it appears."

Amazon likely launched before Christmas to take advantage of discretionary demand, but its initial range was deliberately low-risk and easy to ship – including toys, nappies, books and clothing – and its pricing was benign to ensure it was not flooded with orders and failed to meet delivery promises.

Playing the long game

With 45 per cent of Australians already shopping on Amazon sites overseas, the e-commerce behemoth had the ability to quickly ramp up sales and take a significant share of the market, Ms Sanders said.

Mihir Kittur, the co-founder of data analytics firm Ugam, said Amazon's launch appeared subdued but warned retailers not to place too much stock in initial feedback on social media, where consumers complained prices were too high and the product range disappointing.

"Amazon is known to play the long game very well," Mr Kittur said. "Australian retailers need to remain focused on their customer, with an additional task of constantly monitoring Amazon's moves. The consequences of not doing so will not be a surprise."

World First Australia managing director Ray Ridgeway, who works with about 60 per cent of Australian traders who sell on Amazon overseas, also warned against complacency.

"Because they only partially launched their full Amazon service, most consumers felt let down a little, but I've been exposed to Amazon in various countries and I know what they're capable of," Mr Ridgeway said. "I think it's a matter of time."

Amazon said first-day orders on Amazon.com.au on Tuesday were higher than for any other launch day in Amazon's history, with tens of thousands of customers visiting the site in the first 24 hours.

Orders were placed across all 23 categories and some of the best-selling products included Finish dishwashing powder and tablets, mini flashlights, high-pressure hoses, FitBit devices, men's shavers and Huggies nappies.

"We are thankful to Australian customers for making this a landmark day in Amazon history," said Amazon Australia country manager Rocco Braeuniger. "From early in the day, we experienced visitor numbers that far exceeded our expectations.

"We will be working hard today and in the long term to continue to enhance our offering and to provide customers with an ever-increasing selection of products at low prices."

Retail experts who predicted Amazon would attempt to undercut prices by 30 per cent were proven wrong, with Amazon more expensive on some products – such as iPhones, cables and appliances – and cheaper on others, especially toys and groceries.

Amazon's range was also narrower and not as deep as expected, and was dominated by third party or Marketplace sellers.

The underwhelming launch prompted analysts to say the impact on Christmas was likely to be muted.

"Near-term disruption to retailer sales and earnings is likely to be limited in aggregate, however, pockets of disruption may occur," said Citigroup analyst Bryan Raymond.

Game-changers

UBS analyst Ben Gilbert said launch expectations were so high it was always going to be difficult for Amazon to beat them.

"But I'm not discounting the impact they'll have long term," he said. "It's just going to take time."

"The game-changer will be Prime and [two-hour delivery service] Prime Now – that's when they get you in to the point where you're part of the Amazon ecosystem ... and it's just so easy to do everything on Amazon."

According to Bain and Co analysis, Amazon's Australian site launched with about 7.5 million SKUs (stock-keeping units), which far exceeds the number on most Australian retailers' e-commerce sites but is well short of the 500-million SKUs in markets such as the US.

About 95 per cent of the SKUs were through Marketplace or third-party sellers, and about 7 million SKUs were in easy-to-ship books, music and movies.

Outside these categories, the range was fairly shallow, with limited brand selection and a narrow choice of models. For example, there were "only" 6000 SKUs in men's clothing, 17,000 SKUs in children's clothing and 19,000 SKUs in shoes.

A deep dive by Ugam found Amazon's toy assortment far exceeded those at Wesfarmers' Kmart and Woolworths' Big W, with 47,650 SKUs compared with 2716 at Kmart and 2174 at Big W. In specific product ranges such as Lego, Kmart and Big W had double the assortment of Amazon, but Amazon's prices were more competitive.

Bain said early pricing analysis suggested Amazon was targeting a limited number of "hero" SKUs in each category to establish price credentials, with discounts of more than 10 per cent. Pricing in many other products was on-par or more expensive.

Amazon was likely to aggressively build its Australian offer over the coming 12 to 24 months – adding new categories, deepening the range within categories, improving pricing and launching Prime, which is due in mid-2018.

Bain believes Amazon could become Australia's sixth-largest retailer within five to 10 years – behind Woolworths, Coles, Bunnings, Aldi and Metcash's IGA network, but ahead of Harvey Norman, Kmart and JB Hi-Fi – with revenues of $8 billion to $10 billion, compared with estimated revenue of $1 billion now.