'Under-estimate Amazon at your peril': It seems to be business as usual for Australian retailers

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  • Deloitte’s 2018 Retailers’ Christmas Survey finds 80% of retailers expect to see higher sales compared to last year, with 41% predicting growth of 5% or more.
  • Many (62%) will be discounting to help drive sales, but only after Christmas Day.
  • And the majority (83%) believe Amazon won’t have any impact on their Christmas trading performance.

Australian retailers are shrugging off the Amazon effect ahead of the all-important Christmas trading period.

They plan to hold prices steady in the lead up to Christmas, and expect a strong holiday shopping season partly boosted by online sales.

They are approaching the season with a strong sense of optimism, with most (83%) saying Amazon won’t have an impact this year, according to Deloitte’s 2018 Retailers’ Christmas Survey.

“Amazon has set the cat amongst the pigeons, bringing scale and capabilities that havethe potential to strike in those areas in which Australian retailers are most vulnerable,” says David White, national leader of Deloitte’s Retail, Wholesale & Distribution Group.

“Opinions remain divided on the size and timing of Amazon’s impact, but this Christmas will give us a better idea of just how much progress they’ve made.”

Market analysts say retailers may be left disappointed, as falling house prices and political uncertainty weigh on sentiment.

The analysts note that Australia’s listed retailers had a weak reporting season. Falls were led by The Reject Shop and online retailer Kogan.com, after both companies downgraded their earnings per share forecasts.

Amazon’s local website this week launched a local fashion store with more than 150 Australian brands in one place, putting further pressure on bricks and mortar outlets.

Amazon Australia last month increased the pressure on Australian supermarkets with the launch of Pantry Food and Drinks, with thousands of pantry items from more than 400 local and international grocery brands.

The expansion, Amazon’s 27th category in Australia, came less than 12 months after the launch of its Australian website, challenging local retailers, especially those in consumer electronics, sports goods and some clothing.

But Australian retailers, as surveyed by Deloitte, don’t see Amazon having a major impact this year, as these charts show:

Deloitte

White says Amazon remains one very large elephant in the room.

“While we’ve yet to see the full force of Amazon locally, its Prime offering (free delivery within two days) isn’t as compelling, yet, as in the US and UK in terms of driving volume of impulse buying and loyalty to the platform,” he says.

“This may help explain why 90% of our respondents said Amazon hasn’t affected their business since its local launch.

“But it’s important to learn the lessons from other countries where Amazon has been so successful.

“Amazon Australia continues to invest heavily in its infrastructure and people, but it’s not realistic to expect the creation of a multi-billion dollar business overnight.

“So it’s a word of warning — under-estimate Amazon at your peril.”

Expectations

Deloitte’s Christmas survey found most retailers (80%) expect higher sales, with 41% predicting growth of 5% or more.

Now in its 7th year, the survey found three-quarters (79%) expect growth of 10% or more in online Christmas sales and two-thirds (62%) will be discounting, but most only after December 35.

“Broadly speaking, our retailers are optimistic,” says White.

“They expect to increase both their sales and profit margins compared to last year, pinning their hopes on two key areas in particular — a strong product mix, and an uptick in online sales on the back of investments they’ve made in omni-channel business models.

“Discounting will remain an important Christmas sale strategy, with more than 60% of retailers planning to discount, and a further 21% still to make a call on this front.

“Importantly, they are looking to hold strong on pricing this side of Christmas, with lower pricing only on the agenda as part of Boxing Day sale strategies.”

The first trading week in December will show the way, as consumers do their Christmas shopping later and later.

Digital

White notes a significant increase in retailers investing in digital capabilities.

Nearly 80% are expecting growth of 10% or more in online Christmas sales. In the US, where consumers expect to spend 57% of their holiday retail budget online.

“Australia might finally be seeing the true acceleration of online retail that other developed markets have already experienced,” White says.

“We’re undoubtedly seeing a local shift to similar business models — it’s just taking more time.”

He says the role of the store is changing away from just being a transactional space to an opportunity to build brand through an experience and service face-to-face with the customer.

“Customers can expect to enjoy more innovative store designs and concepts this Christmas, as retailers experiment with new ways to build brand and connect,” he says.

Next year

White says retailers are relatively bullish about prospects for year, despite some warning signs for the broader economy, such as falling house prices, the prospect of higher interest rates, rising energy costs, and a weakening dollar.

“Over half of our survey respondents expect consumer confidence to decline in the next 12 months, but more than 90% expect to see positive sales growth in 2019, and nearly a third are predicting growth in excess of 10%,” he says.

“The role of the store will continue to be a critical part of retailer strategies, but it seems they are confident their investment in digital will provide the impetus to drive their growth prospects in 2019.”

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