On Tuesday the Amazon Australia website began taking orders from New Zealand customers.
If the Australian experience is anything to go by, things won’t change much in New Zealand.
At least not at first. But Amazon is happy to take a long term view.
Amazon Australia experience
Amazon’s first year in Australia was not a success. Sales were behind the company’s expectations.
The AFR reports that last year Amazon Australia had sales of A$1.2 billion. That’s double the figure for a year earlier.
Yet as the AFR notes, it is a long way behind the A$4 billion that analysts forecast for 2020 when Amazon first opened in Australia in 2017. UBS, an investment bank, now forecasts it will hit the $4 billion figure in 2023.
The number looks huge. But A$4 billion is about one per cent of total retail sales and two per cent of total non-food retail. This leaves plenty of room for local retailers.
Now in New Zealand
Amazon issued a press release about the Australian business selling to New Zealand. It says you should see is lower shipping prices, easier returns and quicker delivery.
All these are likely. But we need to put them in context.
Take delivery times. Dispatching a parcel from New South Wales to New Zealand will take less time because a plane takes three hours or so to travel across the Tasman. This compares with 14 hours from a US airport.
But the flight is only part of the journey. There’s packing and getting the parcel to the airport at one end. When it gets here local parcel carriers handle distribution.
If, say, that takes four days from the US. Then, unless Amazon Australia has speeded up processes, it will take three and a half days from Australia.
That’s not a huge difference.
Likewise freight prices are lower, but in most cases this is a small part of the total shopping cost. A 30 per cent cut in freight costs might make a shopping order a few per cent cheaper.
Amazon’s Australian store advantages are marginal when compared to shopping from Amazon US.
There are two things that could make a difference. The first is if Amazon’s Australian business opts for predatory pricing. It could undercut local retailers by a margin.
Second Amazon’s Australian operation has a section for New Zealand products. That could be useful for some local companies. Products won’t travel twice across the Tasman, Amazon will use local companies to handle distribution.
While this puts extra pressure on local retailers, it is not as though they don’t already face competition from Amazon.
The immediate effect will be marginal.
Amazon already has the second largest share of online shopping in New Zealand behind Countdown.
New Zealand retailers account for 71 per cent of online sales in New Zealand. In 2020 we spent NZ$5.8 billion online. Online is 11 per cent of total New Zealand retail.
Amazon accounts for 11 per cent of overseas online shopping from New Zealand. That is around three per cent of the total.
Small but threatening
Let’s say Amazon doubles its New Zealand sales now it has an Australian store. The rest of the market continues to grow. Which means a year or two from now Amazon might be 5 per cent of total online retail, not even one per cent of all retail.
Amazon has always been happy to play a long game. Over time more retail will go online and, if Amazon uses its market clout, it could win a growing share. It has yet to offer a Amazon Prime service to New Zealand with ultra short delivery times and other lures.
There’s no room for complacency. Local retailers will have to work ever harder to earn a crust. That would be the case regardless of Amazon. Opening an Australian business serving New Zealand increases the pressure, but the serious threat lies a few years in the future.