Amazon makes child's play of local toy sales
Forty-year-old family business Hunter Products launched its first toy on Amazon Marketplace in the US about eight weeks ago but it hasn’t taken long for the Australian toy maker to witness the power of the digital giant.
Sales of its Japanese-styled Shibajuku Girl dolls are impressive even at this early stage and it’s proving a “lucrative” new channel for the toy and sporting goods seller.
Amazon is coming to Australia
The US online retail behemoth confirmed Thursday it will establish the first of many fulfillment centres in Australia, in a move that’s sure to disrupt the local market.
In Australia, Hunter sells its own creations as well as a selection of high-profile kids’ lines such as Wigglers merchandise through the big-name retail chains, including all the discount department store chains as well as Coles, Aldi and Woolworths.
But sales manager James Hunter said it would “jump at the chance” to work with Amazon in Australia.
It’s not just the reach of Amazon that works for Hunter, it’s also the platform’s potential as a testing ground for new designs.
Mr Hunter said a lot of businesses used Amazon in the US to measure the popularity of new products before moving to an official, retail launch.
“The traffic to the site is amazing and Amazon is able to move large quantities,” Mr Hunter said.
Amazon has not released any details of how its Marketplace platform will work in Australia or details of the margin they will collect on any sales.
However, if it can replicate the US model, Amazon will compete head to head with Australia’s bricks and mortar retailers and strengthen the headwinds battering the discount department store chains as well as the mid-market apparel brands.
It’s competition that Australian Competition and Consumer Commission chairman Rod Sims welcomes.
“This is going to be terrific for competition, I see it as positive for consumers and positive for those businesses that are supplying the big retailers,” Mr Sims said.
He said one of the biggest challenges with having two supermarket operators that had 70 per cent of the market was that it made it “very hard for some suppliers”.
Broker Citi said the lack of detail in Amazon’s announcement suggested the launch was more a public relations exercise to market its Marketplace platform to sellers and attract “executive talent”.
Analyst Bryan Raymond said Amazon would need to create incentives for small to medium-sized enterprises to shift their focus to the Australian marketplace rather than continue to sell through eBay Australia and the more established US, UK and European Amazon platforms.
He said the timing of Amazon’s arrival was still very uncertain and unlikely before 2018, when it still needed to establish third-party agreements and build a distribution network.
“Launching in new markets is complex and prone to delays as has been experienced in Singapore, which was delayed from an initial target of the first quarter of 2017 to April 2017 and more recently delayed until late 2017,” Mr Raymond said.
Any assault on Australian supermarket sales appears to be an even more distant prospect and even when it does launch, Amazon Fresh analysts are uncertain it will be able to replicate its US delivery speeds of less than two days.
That’s small consolation for Coles, Woolworths and Aldi when Amazon has demonstrated a willingness to forego profits to build market support in new territories.
Wesfarmers chief Richard Goyder has been warning of Amazon’s arrival for years and its incoming chief, Rob Scott, said the conglomerate would be more careful than ever about sharing its plans.
“Amazon doesn’t give a running commentary on their strategy and I’m really reluctant to be an open book about our strategy,” Mr Scott said.
“I’ll probably be prepared to share less than 10 per cent of what we are thinking and how we are going to get there.”
He said stagnant wages growth in Australia meant value was already a key focus for the conglomerate’s retail brands including Coles, Bunnings and its troubled Target business.
“It’s public knowledge that Amazon are comfortable operating at a loss for many years,” Mr Scott said.
“So clearly it’s a risk for the retail sector.”
A number of the listed retailers retreated on confirmation of Amazon’s launch plans for Australia despite broadly positive sentiment across the sharemarket.
Harvey Norman slid by 3.45 per cent by the close of trade to $4.20, Myer gave up 2.62 per cent to $1.11 and JB Hi-Fi fell by 1.77 per cent to $24.46.
“I don’t think anybody fell out of bed with surprise this morning when they saw Jeff Bezos on the front page, but investors are definitely concerned,” said Karen Jorritsma, a director in equities at Citi.
“Investors are jostling around in the retail space, but it’s just so dependent on timing. People are trying to quantify the Amazon impact on margins and market share, but no one precisely knows when they will arrive.”