By Mike Cherney in Sydney and Laura Stevens in San Francisco
Amazon.com Inc. is preparing to bring its full retail offering
to Australia, signaling a major competitive threat to the country's
retailers and an important new beachhead for its global
distribution network.
Australia's more favorable regulatory climate is also likely to
offer Amazon opportunities to test deliveries via autonomous drones
and road vehicles, a person familiar with the matter said.
Australia last year rolled out new rules for remote-operated
drones, and government officials are looking to develop national
guidelines for autonomous-vehicle trials.
Amazon, which announced its Australia intentions last month,
hasn't said when the full retail offering will roll out. Some
analysts say 2018 is a likely date.
Australians can already order products from Amazon overseas, but
they typically pay higher prices for shipping and wait longer for
delivery than Amazon shoppers in other countries with domestic
operations. This has constrained Amazon's challenge to online
competitors such as eBay Inc. in Australia, as well as traditional
retailers, which have until now been somewhat insulated from the
demise of brick-and-mortar stores rippling across the U.S.
That could soon change. One analysis from Citigroup Inc. found
that Amazon sales could grow from between 500 million Australian
dollars ($371.3 million) and A$700 million currently to A$4 billion
in the medium term, a significant chunk of the roughly A$20 billion
Australian e-commerce market. Electronics retailers are expected to
be the hardest hit, with Citi lowering its long-term
earnings-per-share forecasts for some Australian companies by more
than 30%.
Australian retailers haven't until now faced the kind of
competition that would have forced them to invest heavily in their
online offerings, says Citi retail analyst Bryan Raymond. Retailers
in other countries have "been forced into it through Amazon or
someone else pushing people that way."
The Australian e-commerce market is small compared with the
U.S., where online sales last year were estimated at $391 billion
according to the U.S. Census Bureau, but the lack of a truly
dominant online retailer suggests there is an opportunity for
Amazon. One measure from Citi gives Amazon 4% market share in
Australia. In the U.S., Amazon's share is 31%, Citi says.
Australian e-commerce sales lag behind other developed
countries, so there could be room for growth, making Australia an
attractive market for Amazon as it seeks to expand its
international footprint. The company is spending billions of
dollars to secure growth in Mexico and India, and recently reupped
its attempt to take on Alibaba Group Holding in China as it
diversifies away from relatively saturated U.S. and European
markets.
The Chinese market has proved tough to conquer. Amazon launched
its Prime membership program there late last year aiming to
capitalize on Chinese consumers' desire for products from overseas,
but it has been fighting to gain share against entrenched local
incumbents. India has been more of a success story, where Amazon is
one of two market leaders. Still, it is facing increased
competition there too after No. 1 Flipkart Group's recent $1.4
billion fundraising round.
Amazon has cited its rapid international growth as a reason for
higher spending in recent quarters. The company takes varying
approaches by market when it expands internationally and balances
growth carefully with management bandwidth, said Chief Financial
Officer Brian Olsavsky on a recent earnings call.
"We pick our spots carefully," he added.
In Australia, online sales were about 7% of total retail in
2016, compared with 11% in the U.S., 15% in the U.K., and 18% in
South Korea, according to Euromonitor International. Canada, a
country that is similarly vast and with a relatively low population
like Australia, is also at 7%.
Australia could also fit into Amazon's plan for a global
transportation network that the company envisions will eventually
compete with global logistics companies like United Parcel Service
Inc. and FedEx Corp., according to people familiar with the matter.
It has said it is leasing 40 planes and purchasing thousands of
branded truck trailers, as well as building its first dedicated air
cargo hub in Kentucky.
Amazon has also formed a team to look at the future of
autonomous vehicles, and it has already completed its first
commercial delivery via drone in the U.K.
Drone experts say regulations are similar in both Australia and
the U.S., but there are some signs Australia might have an edge,
perhaps further enticing Amazon into the Australian market.
"Australia is clearly committed to testing drone delivery," said
Ben Marcus, chief executive of drone airspace services technology
provider Airmap. There is a strong case to use drones for rural
deliveries there, he said.
The country is nearly the size of the contiguous U.S. but has
less than 10% of the people.
Jodie Burger, a lawyer with an aviation specialty at Corrs
Chambers Westgarth in Brisbane, Australia, said she wouldn't be
surprised if Amazon began testing drone deliveries in Australia
soon. "It's ripe for the picking," she said. "I don't think it will
be very long at all."
Amazon declined to comment on possible drone or
autonomous-vehicle tests in Australia.
As it builds out its network in Australia, Amazon will likely
rely on its logistics network in the U.S. as a model -- where big
warehouses called fulfillment centers are strategically located
near population centers. Amazon has said it is already looking for
a fulfillment center location in Australia, with analysts saying
Sydney is a likely starting point.
Amazon's Prime membership program in the U.S. offers two-day
delivery, with same-day delivery available in some areas. Although
Australia's vast size and rural areas could bring challenges,
Amazon will likely first focus on the east, experts say, where the
country's three biggest metro areas, centered on Sydney, Melbourne
and Brisbane, are located. About half of all Australians live in
those metro areas.
"I would imagine they would start off in one or two warehouse
facilities in the east coast," said Nathan Huppatz, co-founder of
Costumes.com.au and shipping software service ReadyToShip.com.au.
"It's quite possible they can make that two-day promise to most of
the capital cities very early on."
Write to Mike Cherney at mike.cherney@wsj.com and Laura Stevens
at laura.stevens@wsj.com
(END) Dow Jones Newswires
May 17, 2017 05:44 ET (09:44 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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