The Amazon Effect on Small Businesses in Australia and You.
Amazon is coming to Australia and depending on which side of the fence you are on, that can either be good or bad. As a consumer, Amazon coming to our shores looks like a positive move. Just like Aldi and Uber before it, the pressure will put on the big boys of Australia to shape up price wise. As a retailer, the pressure is on to remain competitive and relevant.
Before we delve into it, what is Amazon?
Amazon is the largest internet-based retailer in the world. Based in Seattle Washington, (yes, also home to Microsoft!) Amazon was founded in 1994 by businessman Jeff Bezos. It started as an online bookstore and grew to DVD’s and other online products and downloadables including Kindle eReaders. They now have cloud based storage services, a marketplace that sells almost anything you can ever need and have just purchased a physical store presence in the US. They employ over half a million people worldwide and are literally growing by the day.
Sizing Up The competition
Large retailers like Harvey Norman, JB Hi-Fi, Myer, Woolworths and Wesfarmers (who own Coles, Target and Kmart) would be considerably worried with the global giants arrival. Price matching is one thing, but the difference with Amazon is they are priced considerably lower. Most savvy shoppers will notice they can buy almost anything cheaper through Amazon. The main sticking point at the moment is shipping to Australia. This is holding Amazon at bay and consumers are still sticking close to home when it comes to their purchases.
With the global giant being based right here in Australia, the shipping factor is eliminated and all of a sudden you are buying locally. Consumers will be attracted to the considerably lower prices and competitive shipping. And it’s these lower prices that most retailers will find the biggest hurdle to overcome.
The Business Model
Amazon’s profit margins are actually unheard of, and not in the positive sense. In 2016 they generated US$94.7 Billion worth of income in the sale of products alone. That is HUGE. Their outgoings in buying merchandise and overheads within the marketplace sector was US$88.3 Billion. All of a sudden, when you subtract the expenses from the income that is only a profit of US$6.4 Billion dollars. Nothing to sneeze at for us average folk, but in terms of percentage, their markup is roughly 6.8%. Would your business survive with a mark up of only 7%?
To put it into further perspective, Harvey Norman had a gross profit margin of 31.4% and Myer was 42.1% in the same year. The other large Australian retailers were also in the high 20% – low 30% gross profit margin.
So, how can Amazon do this? They offset their product based business model with their service based businesses. Amazon are in the IT sector with cloud storage facilities and other non product based business models. These areas of the business are generating much larger profit margins which allow for the lower profit margin of their product based business. Absorbing the pitfall of lower profit margins, Amazon can corner both sides of the market without making a loss.
The Effect on Small Business
The effect Amazon will have on small businesses in Australia is not fully known. While almost half small business owners surveyed are worried about the mighty retailer joining the market, some are remaining positive. One thing we do know is your business needs to be ready for when the doors open. Making sure your business is Amazon proof before they get here is the best way to make sure you are in the positive camp.
Making Your Business Amazon Proof
As much as we’d like to, as small businesses we can’t compete with Amazon. There just simply isn’t the scope to undercut them on price or better their online presence. They spend billions each year to make sure they are the biggest. What you can do though, is make yourself unique to them. Stand out for reasons other than cheap prices so your customers keep coming back.
1. Inject Yourself in Your Business. The one thing Amazon doesn’t have in their business model is you. Your personality is unique to you and your business. It is proven that people buy from people. They feel more comfortable making their purchases from people and stores they trust. Show who you are and that you are a real person and people will begin to relate to you and form a bond with you and your business. This is one thing Amazon can’t do.
2. Go The Extra 1%. If you are a product based business, you will no doubt not be able to lower your prices to the levels of Amazon. So make your product and service the reason people come back to you. Customers who value service and quality are happy to pay slightly more knowing they are getting that extra little bit in return. Place a thank you card or small gift in their order or gift wrap their order free of charge. They are small gestures that go a long way in making your business stand out from the rest. And again, you can guarantee Amazon won’t be doing this.
3. Build Your Online Presence and Target Your Audience. Amazon has a huge online presence, there is no denying that. But as a small business owner you can start building your own presence now before they arrive. Look at your audience and determine who your target market actually is. Not who you think they are or who you want them to be. Look at your traffic, your sales and your stats and target your business to them. You might appear to be narrowing your audience, but you will actually be increasing your conversions and in turn your revenue. Amazon doesn’t have a niche market, they target everyone, but you can use your niche to your advantage and target their needs more closely. A more personalised touch will help potential customers react to you more positively.
4. If You Can’t Beat Them. The old saying goes “if you can’t beat them join them”. This is by no means a give up clause or flying the white flag. A smart business will look at Amazon and see where they can benefit from their arrival. Being a marketplace, there is the ability to list your wares on their site, increasing your exposure and potential sales via their natural pull. Look at amazon.com and see what is selling and how they are listed and assess what you have to offer. The other avenue Amazon has is an affiliate program. Consider if this is something you can merge into your own business and advertise certain niche products from their site. If someone is going to buy from there, you might as well earn a commission from the sale.
People will naturally be drawn to Amazon for the cheap prices and convenience. But you can make the choice a lot harder for them by giving your customers what they can’t get from the big giant.
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