Amazon's unprecedented challenges Down Under

An employee at an Amazon fulfilment centre in Britain. The world's largest online retailer faces several challenges as it seeks to enter Australia, including the vast distances between major population pockets, as well as high wages.
An employee at an Amazon fulfilment centre in Britain. The world's largest online retailer faces several challenges as it seeks to enter Australia, including the vast distances between major population pockets, as well as high wages.PHOTO: BLOOMBERG

SYDNEY • Amazon.com, which has lost billions overseas trying to replicate its United States success, is now attempting to crack one of the biggest and most sparsely populated nations where bricks-and-mortar retailers are king.

The Seattle-based firm, which sells everything from groceries to high-end fashion, says it is "actively looking" for a warehouse as it prepares to start operations in Australia. Anticipating a price war, analysts have nearly halved profit forecasts for electronics chains such as Harvey Norman and JB Hi-Fi.

But the world's largest online retailer, which has exported its model to Germany, Britain, Japan and most recently India, faces unprecedented challenges in Australia.

It is a nation almost as large as the US but home to a smaller population of 24 million. Major population pockets can be 4,000km apart, driving up the cost of fast deliveries. Wages are higher than in most major developed nations. And the quantity of red tape means it is easier to do business in Macedonia, according to rankings by the World Bank.

Compared with the most advanced markets for Internet shopping, Australia does not come close. Buying goods online is at least twice as popular in South Korea, China and Britain, according to Euromonitor International.

The cost of serving Australia's biggest cities, from Perth in the west to Sydney on the eastern seaboard, will undermine Amazon's high-volume, low-margin model, said Associate Professor Gary Mortimer at the Queensland University of Technology. "When they arrive, the distance is going to be a problem."

At home, Amazon has a market value of US$475 billion (S$657 billion) and dominates e-commerce. It is tougher to replicate domestic success overseas. While sales at Amazon's international business have soared, the division has posted consecutive pretax losses since 2012 totalling US$2.2 billion as the firm invests in new markets, according to Amazon's annual reports.

Internet shopping in Australia will be worth A$28 billion (S$29 billion) by 2022, up from about A$18 billion now,  researcher IBISWorld said in a November report, before Amazon confirmed its Australian plans.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on June 03, 2017, with the headline 'Amazon's unprecedented challenges Down Under'. Print Edition | Subscribe