Amazon’s march into the Australian retail market has continued with the company reportedly paying $7 million for land in an industrial area south-west of Sydney.
The Amazon Australia website was for many years a bookstore for the US parent, but last week opened as a general store to a limited number of customers for testing. On the way, the company this year opened its first local fulfillment centre – the term it uses for warehouses — in the eastern Melbourne neighbourhood of Dandenong South.
Now as the general public awaits a full launch, Fairfax Media reports Amazon paid $7 million for 2.11 hectares of vacant land at Lot 4331, 42A Bluett Drive, Smeaton Grange – an industrial area some 60km from downtown Sydney.
The empty block is next to the Goodman Group’s Ironbark Industrial Estate, where Amazon has reportedly rented warehouse space since 2015.
The speculation is that the purchased land would be developed into a fulfillment centre for Australia’s most populous city, avoiding the need to deliver items out of Melbourne.
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Amazon is also reportedly leasing space in the Goodman Group’s Bungarribee Industrial Estate in Eastern Creek, in western Sydney. That is described as “a warehouse” in lease documents, according to Fairfax, while the Ironbark facilities are registered for “network operations and data centre”, presumably for its Amazon Web Services cloud computing business.
Goodman Group has previously declined to comment to Business Insider on its relationship with Amazon.
Both the Bungarribee and Ironbark facilities are leased to Amazon on 10-year terms. Fairfax reports the US giant is paying $1.34 million and $1.2 million a year rent respectively for those sites.
The possibility of opening multiple fulfillment centres is not surprising, with multiple industry experts telling Business Insider that Australia’s geography would prove a logistical challenge for Amazon.
“Fulfillment costs will be higher, as the brand will have fewer centres initially. Building its Fulfillment by Amazon service may result in a slow start for the giant and there is still the potential for unseen repercussions relating to fulfillment in the world’s sixth largest country [in area],” said OFX partnership manager Ed Wiley.
“Given this geography, postage costs aren’t likely to be cheap.”
One of the biggest successes for Amazon, especially in its home country, has been Amazon Prime – a service that provides unlimited 2-day shipping for customers that pay a yearly ($US99) or monthly ($US10.99) subscription. And Australians are also keen for such a service, with research from tech firm Pitney Bowes indicating 82% of local shoppers want free shipping, even if it means the goods get to them a little bit slower.
IBISWorld senior industry analyst Kim Do said Australia’s geography will likely see Amazon unable to offer Prime upon its expected general launch this month.
“Australia’s large geographical size and dispersed population will lead to higher distribution costs compared with Amazon’s home market in the United States,” said Do.
“This is likely to limit the company’s ability to offer Amazon Prime Shipping services in the short to medium term.”