Grow Magazine

The Amazon effect: lower prices, more choice

23 November 2017

Consumers will win when Amazon.com launches in Australia, says ANZ economist Joanne Masters.



Speculation is rife that Amazon Australia will launch within the next week. With a market capitalisation of $US540 billion, the US-based online retailer, started by Jeff Bezos, is the world’s fourth-largest company.

In this video above, Joanne Masters, a senior economist at ANZ, says Amazon is expected to shake up the Australian retail landscape, but it’s a positive move for the consumer, as ultimately it will lead to lower prices.

“If you look at other economies that it has entered, Amazon can be a game changer, absolutely,” Masters says.

“The consumer tends to be a winner. We tend to see a greater variety of products, and of course, Amazon competes on price, so that means lower prices for consumers, greater bargaining power, greater options around what they buy and how they buy it.”

Amazon brings low prices and fast delivery 

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Kim Do, senior industry analyst at IBISWorld, concurs that Amazon’s imminent arrival will shake up the retail sector, with department stores and electronic goods' retailers expected to be the hardest hit.

“The company intends to challenge domestic retail prices by offering items for 30 per cent less than domestic retailers,” she says. “This is expected to appeal to price-conscious Australian consumers, and is likely to affect local retailers that have found it difficult to adjust to a shift in consumer spending behaviour over the past five years.

"Online shopping in Australia is expected to grow at an annualised 13.5 per cent over the five years to 2017-18, to reach $20.1 billion.”

Technology products are anticipated to be the highest-selling category for Amazon, which means it is expected to take market share away from local electronic goods retailers, such as JB Hi-Fi and Harvey Norman.

IBISWorld expects Amazon will be prepared to make initial losses to help it gain market share within Australia’s online retail sector as quickly as possible.

“The company is expected to focus on providing consumers with low prices, a diverse product range and fast delivery,” says Do.

“However, to be successful in Australia, Amazon’s current business model will need to be adapted to the Australian market. For example, Australia’s large geographical size and dispersed population will lead to higher distribution costs compared with Amazon’s home market in the United States.

"This is likely to limit the company’s ability to offer Amazon Prime Shipping services in the short-to-medium term.”