The Amazon Effect - A Special Panel Event
Amazon’s arrival to Australia will start the biggest changes to retail and publishing in modern history.
Maybe. Or not. There’s opportunity, some say. Or total doom. We don’t really know. And while local retailers and publishers are putting on a brave face publicly and spruiking their Aussie spirit and savvy competitiveness, everyone agrees the game is about to change.
Experts predict Amazon is on track to be the first company valued at $USD 1 trillion dollars.
The disruption it brings to retail and publishing is just the tip of the iceberg. Amazon is more than just an online shop. It is a comprehensive ecosystem supplying literally every human need.
Incredibly, that’s not even its potency. Amazon’s true potency lies in its capacity to change human behaviour. It supplies what you want, when you want it; It offers a change to how you order things via home automation; where you order and store them; and how you pay for them via their own financial services platforms.
Perhaps more importantly, Amazon changes how you think, because it’s conceivable that if it’s not on Amazon, you just won’t bother. If a company like Netflix has disrupted the TV and studio system by creating and distributing content direct, then Amazon is on track to disrupt Netflix. This is the disruptors disruptor. No industry will be untouched by a company whose reach has never been so deep.
Of course, no Australian retailer or book publisher is about to lie down dead, and the arrival of Amazon provides opportunities for those with a plan.
PMP’s Griffin Press held an event in Sydney, to lead discussions about The Amazon Effect for local retailers and publishers.
“There’s no doubt in the minds of everyone working in print and publishing that Amazon represents a significant change to the status quo,”
“We felt it was important to support our customers and lead the discussion about what those changes might look like and understand how this disruption could impact the environments our customers operate in”
Top executives from Australia’s publishers gathered to discuss what the arrival of Amazon could mean for our local sector, which is more than a mere economic instrument.
These people form the pointy end of an industry that nurtures and produces work vital to our national cultural identity. And they aren’t about to keep a business-as-usual attitude as Amazon arrives in Australia.
Panellists included innovation leader and retail analyst John Batistich, media disruption leader Eric Beecher of Private Media, online retail guru Tony Nash of Booktopia, and retail book expert David Gaunt from GleeBooks.
Ben Shipley, Managing Director of Spectrum Group, moderated the event and probed panellists about their fears, hopes and plans around the arrival of Amazon to Australia.
“When Amazon went live in 1995 as a new model, the publishing and book retailing industry was largely unprepared for the changes the new model would bring,” says Shipley.
“The Australian publishing and retail industry has the luxury of being forewarned, so this was an opportunity to hear what further changes are being made in the publishing, printing and retail models.
“We know that our local industries are sitting on mountains of data from years of purchases and interactions, which is a significant advantage over Amazon.
“The next stage is to understand the opportunities for innovation beyond emulating the Amazon business model,” said Shipley.
Amazon to go slow
Conjecture around Amazon’s plans is all anyone has since the company has said nothing. It’s a conscious strategy to let the buzz do the work for them.
Retail expert John Batistich says “Amazon will have a measured, staged approach to Australia rather than the all-guns-blazing launch they had in India.”
“Fulfilment in Australia is broken and only 17% of Australian retailers can provide same day delivery.
“Amazon won’t be able to solve the last mile fulfilment problem in Australia and they won’t invest either, rather they’ll partner with Australia Post.
“There will be a light release around books and then a gradual expansion of categories with apparel coming in February-March 2018, and Prime later next year.
“The range of products will be a critical priority for them, but they won’t go below market prices.
“Australia is a long game for Amazon and we won’t see Fresh - their grocery offering - for the first five years,” says Batistich.
Book retail disruptor Tony Nash of Booktopia says Australia is lucky to have the benefit of Amazon’s slow dance.
“Australian retailers get to slowly invest to hold on to the market they have, so there are some positives of Amazon coming so late and doing it so slow here.
“We have to always ask the question: Are we adding value? The media people haven’t worked [digital disruption] out, but it comes down to connecting with your customers in a certain way.
“In the US independent bookstores are growing because their staff know their books and can talk about other authors in a similar genre. Connecting with the customer is not gone,” Nash says.
The challenge for Australian retailers is to deliver that same standard better and cheaper than an Amazon behaviour algorithm.
Australia’s last mile “problem” could level the playing field
Booktopia CEO Tony Nash has been at the forefront of Australia’s digital disruption.
His company, which famously began on a $10 a day budget for Google AdWords, eventually bought a major Australian bookseller, printer and publisher Angus and Robertson which was founded in 1884.
Nash says Amazon is already talking to Australian businesses about Marketplace, which he sees as providing opportunities for local retailers.
“Amazon is actively recruiting in Australia for Marketplace, and to give them a cut is going to be more profitable for many retailers than doing it themselves,” Nash says.
He’s optimistic that Australian retailers can effectively compete with Amazon if they focus on logistics, price and product range.
Major online players such as Booktopia and The Iconic are investing heavily in logistics and fulfilment. The Iconic recently expanded from a 9,000 square metre fulfilment centre to 20,000 square metre digs.
Meanwhile Nash says Booktopia, which has revenue of $100 million a year, recently upgraded its logistics with an AUD$9 million investment.
“Amazon won’t be aggressive on price, but they will be on logistics eventually,” Nash says.
“Shipster from Australia Post is interesting because it will be a legitimate alternative to Amazon for local retailers.”
Logistics and fulfilment has been key to Amazon’s success, yet the level of success they have in the US has so far eluded them elsewhere.
“Amazon has done well in the US, but elsewhere in the world they are a shamble and this is because of population density,” says Nash.
“The US population density is 900 people per square kilometre, compared to just 300 people per square kilometre in Sydney.”
In the US Amazon has 5 per cent of the total retail market share, and 3.5 per cent in the UK.
Analysts agree that Australia and Canada are comparable markets due to similarities in population size, labour costs and size of country.
Amazon’s market share of total retail in Canada is 1 per cent.
John Batistich agrees that Amazon is not guaranteed to dominate Australia.
“Canada is a much better market to compare to Australia and with Amazon not looking to solve the last mile and relying on Australia Post means they are nowhere near the threat that is being called out,” Batistich says.
Booktopia’s Nash says Amazon’s ability to fly in international print titles from their Singapore base at prices cheaper than locally sourced titles might be a new battleground.
“Amazon has been given tens of millions of dollars by the Singaporean government to set up there,” says Nash. “For them to have their own planes sitting there, flying stuff in is where there will be a problem because Australian publishers rely on sales from international titles to fund Australian books and Australian authors, and this is where the real battle might be.
“Some of the bigger publishers might shrink, and the long tail of independent booksellers and publishers who are nimbler with fewer overheads will be able to pick up some opportunities along the way.
“If you’re adding value in the process of anything, you have a chance to succeed,” Nash says.
Go niche, be specialised
Traditionalists and disruptors agree on one thing - mass is dead, niche is key.
Booktopia boss Tony Nash says the future for Australian retailers is to offer things that are specifically local rather than the mass product offered by Amazon.
“We sell the mainstream big-name authors obviously, but our focus on local offerings that are as niche as the Australian Police Handbook, or publications from Autism Australia are what separates our offering and ensures we have something unique,” says Nash.
Retail analyst John Batistich says that kind of local knowledge and connections are key for publishers and retailers.
“Amazon has no book experience in Australia, and the employees running categories on Amazon have data backgrounds.
“A data analyst cannot inform you about what author to back, or what book is getting buzz for an upcoming award.
“Amazon is about cold hard commerce, but those working in the publishing industry foster talent and understand culture, which comes from their connections in the industry and a love of books,” Batistich says. “Amazon just doesn’t have this in its DNA.”
But there is still a clear and present danger with Amazon that will keep locals on their toes.
“What Amazon does have is the ability to negotiate on volume, and sell books as loss leaders to entice people onto the platform to buy other things while they are already there,” Batistich says.
Not that this is anything new. Big names in Australian retail already use the same tactics.
The obvious challenge is to have a unique reason for consumers to avoid the digital mass mall of Amazon, and to have the technology and platforms in place to satisfy the modern shopper.
The crippling costs of marketing ‘niche’ are a killer
Bookstores and other retailers already face steep rental, fit out, payroll and an avalanche of overhead costs.
Co-owner of Gleebooks, David Gaunt says his stores grew as a direct result of doing what a physical shop does well rather than competing on cheaper prices from online shops.
“As an exclusive bricks ‘n mortar bookseller it is almost impossible to sell the same product at two different prices to essentially the same market, so my feeling is that we became a reasonably-sized independent bookseller on the strength of the long tail,” he says.
“The irony is that as distribution increased in efficiency, our capacity to sell decreased.
“Our customers aren’t going away from new cookbooks or fiction, but how customers are getting them has changed.
“Our point of difference of ‘come to a bookshop and you’ll have a tactile experience and speak to people who know what they’re talking about’ is diminished.
“I can say to customers ‘I can get that to you in 72 hours’, [but] it’s still not enough because it’s not there in front of you.
“My concern is that the level of fragility and profitability overall might be such that just a 2-3 per cent change for a longer period of time might tip the balance.
“Twenty-thirty years ago as retailers we didn’t have to market and now we do and that costs money and the only way you can win is by selling more. I’m just a little bit nervous about profitability,” Gaunt says.
Lessons learned from a collapsing mass media industry
Eric Beecher is a leading media disruptor. A former editor of the Sydney Morning Herald, former magazine and book publisher with Text Media, and now owner of Private Media which specialises in niche online publications including Crikey, Smart Company and more.
Beecher’s role on the Griffin Press Amazon Effect panel was to offer insight into how Australian companies might defend their turf against a disruptor.
“The collapse of the print media has affected newsagents and distributors,” Beecher says. “At the same time, the funding model of public interest journalism disappeared, which is a direct threat to democracy.
“Book publishing has survived amazingly well in that context.
“The changes to the media industry were driven by technology that changed the advertising model that funded journalism.
“The quality of all media content is improving enormously, so that’s not the issue, the issue is how technology changes the way people consume the content.
“Book publishing is very different because people are willing to pay for the content. People buy books in a way they won’t buy news.
Beecher says technology fundamentally changed the economics of the global media industry, opening the doors to niche specialists.
“In all aspects of media, niche can do well compared to the economics of mass media where the competition is greater.
“Audiences are prepared today for niche content and these businesses are doing well as a result.
Beecher says the real threat is Time, and that all businesses must offer something that ultimately competes for the customer’s limited capacity to consume.
“The competition for Time is the real issue that will impact on reading for pleasure.
“With quality podcasting and streaming TV services, the time to consume these things comes at the expense of consuming content in other forms,” Beecher says.
Booktopia’s Nash believes that Amazon could struggle from a mass market approach.
“When you are everything to everyone, as Amazon is the everything store, then you can’t be one thing to one vertical,” Nash says.
“Most people are buying for themselves.”
And this again is where the focus on consumer needs becomes the driving force in the new era of disrupted business models. The delivery mechanism is not what fundamentally drives our wants, needs and desires.
“Nothing changes for consumers, if they need something they’ll get it,” says Beecher.
All about the customer
Slide courtesy of John Batistich
When your mission is “to be Earth’s most customer-centric company”, you raise the bar.
It’s hard to think of any brand that was obsessed with customers like Amazon.
CEOs are focussed on gaining market share, growing revenue, being first, being best, being cheapest, being aspirational, being luxury…brands want to be lots of things, but you never hear that their greatest desire is to be “customer-centric”.
Twenty years ago, Amazon was an “internet start-up” selling books. Today it’s the fourth most valuable company whose boss is the second richest man on Earth.
All this from doing what every business should’ve been doing forever – taking care of customers.
Where did it all go wrong for the now closed book shops, music stores, video stores, department stores, electronics retailers…all the sectors that cry they’ve been destroyed by Amazon? Did they really lose customers, or simply do nothing to keep them in the first place?
“Amazon has shown that anyone providing a poor customer experience will not last,”
“Borders Bookstores had no value on the floor and no-one could ever find any staff, and it’s dead as a result,” he says.
The curious case of Amazon is that it still thinks like a start-up. The global behemoth behaves like a perpetual underdog even as it now takes on the world’s biggest film and TV studios – and simultaneously their distribution networks and retail outlets.
It once seemed like you really needed to go to a cinema to enjoy the creative output of the world’s best filmmakers and actors. Today Amazon will make it, and stream it to you on a budget but gigantic TV, plus epic surround sound that you can enjoy while sitting in a motorised leather recliner, which was all purchased on Amazon. And it was delivered free!
Even the munchies you shove in your face hole come voice-ordered from an Amazon Echo so you only need to get out of that sweet recliner to open your front door to accept the delivery. It’s like they just get the customer.
Australian retailers will benefit from how Amazon has coached buyers
There is much talk about the threat Amazon poses to Australian retail. Bad news sells. Fear is a strong motivator. But what of the opportunities?
Certainly, the standard of retailing is about to be heightened. Amazon’s obsession with customers has coached a range of industries to rethink their approach.
At the lower end of retail, Amazon has Marketplace, which will now allow Australian businesses to grow as sellers pour into the platform. This alone leverages the position of the Australian sector with more vendors benefiting from Amazon’s direction and development.
More importantly, the arrival of Amazon is expected to ease many Australians into shopping online with a greater degree of comfort.
"Amazon’s arrival in Australia will create a lift in online sales overall in Australia,” says Tony Nash, Booktopia CEO at the Griffin Press Amazon Effect panel.
Australians are already among the highest spenders online. Despite a small and widely dispersed population, a relatively poor broadband infrastructure, and expensive delivery options, Australia ranks in the top 10 global e-commerce markets.
The Australian e-commerce market is valued between $20-36 billion depending on the report you read.
IBIS World puts it at a modest $20 billion, with annual growth of 13.5% from 2013-18. This has significantly outpaced traditional retail.
eMarketer values Australian e-commerce at $36 billion, with Frost and Sullivan predicting 9.8% of the total retail spend for 2017 will be done with clicks.
Older generations who are familiar with online but not yet taken to being regular users of digital shopping options are expected to be the market with the highest growth.
The reason? They’re cashed up and don’t care as much as price.
“Baby Boomers have a fair bit of money and they have paid off their mortgages,” Jerry Macey, CommBank’s national retail manager told News Limited.
Around eight per cent of people over-75 years old are concerned about price, while a third of them want quality and convenience when they shop.
Commonwealth Bank’s latest retail insights analysis says online shopping growth is now driven by people 50-plus, which were traditionally the market for in-store shopping.
Online shopping growth forecasts by generation:
• 21-35yo: 5%
• 50-70yo: 10%
• 70+: 18%
Online shopping has consistently been around seven per cent of total retail sales, but CommBank says the volumes are far greater than in-store.
“What we found was consumers and retailers were completely aligned in that 25 per cent volume of purchase made online,” Macey told News Limited.
“We tend to buy smaller and less expensive things online,” Macey said.
“When we buy something more expensive, more is at stake and if you get it wrong you want to send it back easily.”
This comes at a time when most bricks and mortar retailers need them most as loyal in-store customers.
To keep the over-50s from showrooming (trying in-store, then buying cheaper online), retailers need to focus on customer service.
Excite and delight
Retailers are pulling out all the stops to create a wow factor in-store, and the target market is younger generations.
While Baby Boomers and Pre-Boomers are looking for good customer service and an easy checkout process, younger shoppers are looking for the “excite and delight” retail experience.
Sydney’s Gleebooks and many other independent bookstores have strengthened their bonds with local authors and readers by putting on regular events.
Events are now the norm and have been for some time among savvy bookshops.
Melbourne bookseller Readings endured Borders opening across the road from them in 2002. Border’s has since gone and Readings has expanded largely due to a strategy that sees 260 in-store author events this year alone.
Inside the Readings flagship store on Lygon Street, Australian authors get prominent displays on front tables and on the first shelves people see.
At Riverbend Books in Brisbane, another independent bookseller well known to publishers and authors, roughly 60 per cent of the books are written by Australians.
Traditional retailers have also been looking to emulate the events model. Bunnings was early to the in-store experience with “workshop” events and community-linked sausage sizzles.
Harvey Norman’s flagship store at Auburn boasts barista and cooking demonstrations, virtual reality gaming exhibits, GoPro workshops and in-store video game sessions against famous gamers.
The Supercheap Auto flagship store in Penrith offers an “Auto Crew” for car maintenance.
“We’re seeing in the auto segment customers moving from a do-it-yourself to do-it-for-me, so the more we can help customers with things like putting on windscreen wipers to headlamp globe change through to a full-service solution, these are things we’re looking at and have seen working overseas and is a big opportunity for our business here,” Super Retail Group CEO Peter Birtles told Sky Business.
Super Retail Group is behind brands Rebel, Supercheap Auto and BCF and Birtles says having physical stores will be critical to competing with Amazon.
“We think Amazon are a great retailer, but we think we can compete with them,” Birtles told Sky Business.
“The one thing we learn from Amazon is their focus on customers, understanding their customers, and customer satisfaction. And that’s where we see an opportunity across our portfolio of businesses. We’ve got customers who are passionate about their cars, passionate about going fishing or camping, passionate about their sports, and we see an opportunity to link better with those customers. Not only provide them with product but provide them with information, with services, and take more of a solution focus to differentiate ourselves from Amazon,” Birtles says.
These moves bode well for Australian retailers if the US experience is any indicator. While the focus has been on mass store closures across a range of sectors, some retailers are excelling.
“We’re seeing in the US two things: major retailers struggling as a result of Amazon; and the rise of the longtail,” says retail analyst John Batistich.
“For longtail retailers with a niche and special offer, Amazon gives them a new method for distribution.
“There’s three retailers who are under threat from Amazon in the US who are still doing well: Best Buy, Home Depot, and Sephora, and the characteristics defining all three is their investment in their people, culture, experience, and service.
“Best Buy has the blue shirts [staff] to provide advice on how to integrate, make it work, set it up.
“If you need personal service they will send a geek squad to your home to set it up.
“Sephora invested in technologies and staff who will advise on makeup and approaches and answer questions.
“Home Depot, think of Bunnings here with that Tradie who helps you figure out what you need, you can’t do that on Amazon very well,” says Batistich.
Deal or No Deal
Even though price might not be the primary driver, customers will be looking for some sort of deal to stay satisfied.
Buying in-store and finding out later that it was a lot cheaper online sets off a Buyers Remorse that could spell the end of bricks and mortar.
CommBank found only a quarter of retailers actively price-match, but analysts say stores should be open with their customers about the price differences available online, and use it a way to build trust and loyalty.
Retailers who survive and thrive in an Amazon era will seamlessly blend in-store browsing with online ordering with flexible pick up or delivery.
Retailer PETstock has embraced a click and collect model where customers can pick up their online orders from 140 physical sites at a time convenient to them.
They also offer an “autoship” service where regularly-used products such as kitty litter, are automatically delivered to customers.
How search changes the customer journey
Source: Activate Tech and Media Outlook 2017. L2 Inc.
Amazon in the US is currently the top search engine used for product search. It is a major part of Amazon’s growth strategy to compete with Google and it has far-reaching effects.
This alone is a gigantic carrot to significantly entice, or force, Australian brands to Amazon Marketplace.
Already 14% of Australians start their product search on Amazon – and that’s before it’s even launched locally.
Amazon’s search function is changing the broader search industry.
“[Amazon voice interface] Alexa is the one to watch because that is going to change the way we order and the way we receive content,” says Batistich.
Alexa changes voice-activated search and is designed to serve our news, turn on lights in the home, provide our weather updates, and crucially, order goods.
There are now 17 million homes in the US that have Alexa as their core voice interface – outselling Google Home by two and half times.
“They have 300 million customers across all their platforms, they have more data than any other company on the planet,” says Batistich.
“While Google will win on some search, Facebook on search preferences, Amazon has more purchase data than any other company. And they use that purchase data with an algorithm.
“There are cases around debut artists and authors where that is not going to work.
“But in the majority of cases they will use that data to learn about your intent and purchase data and they will predict the future more than any other company on the planet,” says Batistich.
How Amazon search changes the customer journey
Aside from making it easier for small businesses in Marketplace to be found, retail analyst John Batistich told the Griffin Press Amazon Effect panel it has had unexpected effects.
“Amazon search has changed the customer journey as we know it,” Batistich says.
“If you look at Amazon and break it down into range, price, fulfilment; and then how Prime supports that with value-added content, and then how Alexa enables us to interface and remove friction from the customer journey…there’s no company on the planet that can do that.
“The journey becomes either Functional if you know what you want, as well as offering a Discovery journey with recommendations. A need for speed is recognised, then ease of payment, and finally fulfilment. Amazon knows these things better than anyone and it has fundamentally changed how people buy,” he says.
Booktopia’s Nash sees an opportunity for online retailers to focus on design and user experience.
“We’re spending much more time on discovery and less time on search because search has gotten so much better and faster particularly with algorithms, marketplaces and the like,” he says.
“So I think there’s going to be a lot of innovation around design.”
Technology solutions to save the book industry
Amazon’s arrival in Australia means book publishers will need to tighten their supply chain, be vigilant against piracy, and use smart print technology to add value to readers if they are to survive.
Print technology expert and HP executive Michael Gillis told Australia’s leading publishers that they were well positioned to benefit from the arrival of Amazon if they used their print partners effectively.
Speaking at the Griffin Press Amazon Effect, Gillis gave his views from the panel of assembled experts about how print trends can help a nervous book industry as Amazon arrives in Australia.
“Amazon and e-commerce in general have increased consumer expectations of low cost, rapid delivery, and availability of long tail products”
“This is putting increasing demand on publishers for efficient supply chain management.
“Publishers and their print suppliers are increasingly using digital book production to reduce obsolescence, warehousing, distribution costs and turn-around times.
“Market leaders like PMP and other advanced book manufacturers globally have made significant investments in short-run and print-on-demand production capabilities.
“We expect this trend to accelerate as economic pressures increase and digital solutions become ever more efficient and economical.
Gillis told guests that rampant piracy has put a spotlight on e-commerce sites such as Amazon and eBay.
“High-value books such as higher education and Science, Technology and Medical (STM) journals are a prime target.
“Major publishers serving these markets have formed a consortium to develop best practices and methods to address this issue.
“Pearson, McGraw-Hill, Cengage and Reed-Elsevier are piloting digitally printed image-based authentication methods.
“Pearson and McMillian are piloting HP’s version of the technology on titles by LSC Communications, the book portion of the RR Donnelley break-up and largest book manufacturer in the US.
“The goal of the pilots is to use mobile and web-connected scanners to read a QR type code, verify if the mass serialised random number is valid and that the image surrounding the mark is correct and has not been copied.
“The same marks can be used for other purposes including Track & Trace for supply chain optimisation, grey market diversion, and fraud forensics,” Gillis says.
The marks can also be used for direct consumer engagement, which will be critical for publishers to keep hold of the relationship with buyers that Amazon threatens to take away.
“These unique book identifiers can be used by publishers to engage customers with additional web-based content to gain a direct customer relationship,” says Gillis.
“As the additional content and/or purchase offers are made more compelling, the frequency and effectiveness of this engagement will be increased.
“It’s critical for book publishers to consider these print initiatives as part of their strategies to address Amazon’s growing influence in the Australian book market,” Gillis says.