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Amazon still the elephant in the room

Retailers are divided on the impacts of the rise of mega-retailers like Amazon ahead of Christmas.

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Online is set to be a key sector battlefield this Christmas with nearly 80% of retailers expecting growth of 10% or more in online sales, according to a retailer survey conducted by professional services firm Deloitte.

However, Amazon remains at least one very large elephant in the room.

“While we’ve yet to see the full force of Amazon locally, its Prime offering isn’t as compelling, yet, as in the US and UK in terms of driving volume of impulse buying and loyalty to the platform,” Deloitte Retail, Wholesale & Distribution Group leader, David White said.

“This may help explain why 90% of our survey respondents said Amazon hasn’t affected their business since its local launch,” he said.

“But it’s important to learn the lessons from other countries where Amazon has been so successful. Amazon Australia continues to invest heavily in its infrastructure and people, but it’s not realistic to expect the creation of a multi-billion dollar business overnight. So it’s a word of warning, under-estimate Amazon at your peril.

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“Amazon has set the cat amongst the pigeons, bringing scale and capabilities that have the potential to strike in those areas in which Australian retailers are most vulnerable. Opinions remain divided on the size and timing of Amazon’s impact, but this Christmas will give us a better idea of just how much progress they’ve made.”

Over 50% of respondent retailers are currently not generating revenue from overseas, and only a third are currently considering building overseas operations. But with the Australian market becoming more saturated, it’s only a matter of time before they do, and perhaps have to shift their attentions offshore, he said.

White believes Australia might finally be seeing the true acceleration of online retail that other developed markets have already experienced.

“We are undoubtedly seeing a local shift to similar business models, it’s just taking more time. That doesn’t mean the physical store is in need of life support. The role of the store is changing away from just being a transactional space to an opportunity to build brand through an experience and service that can often only be achieved face-to-face with the customer.”

As a result he said customers can expect to enjoy more innovative store designs and concepts this Christmas, as retailers experiment with new ways to build brand and connect. “In the face of increasing competition, retailers now more than ever need to be bold in investing in understanding their customer preferences, how they want to shop and when.  Retailers would appear to be attuned to this need, with 35% identifying customer engagement and experience as their number one strategic priority. Running a close second is omni-channel at 31%, which aligns with retailers telling us they see building sales outside their store networks as critical to their growth strategy.”

White said that, despite some warning signs for the broader economy, such as falling house prices, the prospect of higher interest rates, rising energy costs, and a weakening dollar, retailers still remain relatively bullish about their prospects for next year.