MAF702 Financial Markets: Amazon's Impact on ASX Retail Groups

This report analyzes the impact of Amazon's entry into the Australian market on ASX-listed retail groups. It explores the shift towards online business channels, the loss of market capitalization among established retailers, and the strategies employed by Australian businesses to compete with Amazon. The report discusses Amazon's competitive advantages, such as cost leadership and fast delivery, and the challenges faced by both small and large retailers. It also examines the impact on specific companies like JB Hi-Fi and Harvey Norman, highlighting the expected decline in earnings and share prices. The study further elaborates the challenges faced by the Australian retail industry like high cost of capital and low return on capital employed. This document is available on Desklib, a platform offering a wide range of study resources for students.

AMAZON COMPANY
AMAZON IN AUSTRALIA, ANALYSIS OF THE IMPACT OF THE FIRM ON THE
ASX LISTED RETAL GROUPS
Impact on retail group
Name of the Student

Abstract
With the ramified economic conditions and competitive business environment, each
and every business organization needs to adopt the innovative and creative business
functioning. The innovation could take any shape and form. It could be in the terms of either
hanging the product specification, or changing the way the product can be bought and sold.
Every business is looking for new ways to reach a larger audience of buyers. Nevertheless the
most trusted and tested option if to “GO ONLINE”. But it is not possible for every business
to open their personal website and start selling online. The main impact of Amazon on the
Australian retail business is related to increased busienss industry turnover, increased market
share and strengthening the online busienss channels and dashboard to grab clients online.

Table of Contents
Abstract.................................................................................................................................................2
Introduction..........................................................................................................................................4
Analysis of the Australian retail market and impact of Amazon on it....................................................4
Launched different categories of Amazon.............................................................................................6
Main players of Australian Retail industry.............................................................................................7
Australian Retail market condition........................................................................................................8
Impact on the Australian retail market..................................................................................................9
Conclusion...........................................................................................................................................11
REFERENCES....................................................................................................................................12

Introduction
With the changes in time, every organization needs to expand their busienss by
adapting towards the online business channels. However, it is not possible for every business
to open their personal website and start selling online. This requires a lot of investment and
there is no guarantee that the product will be definitely sold. This process has impacted the
cost of capital and busienss outflow of capital from the retail business Organizaiton. The
capital budgeting process has been mostly used by the big giant players in adapting towards
the online busienss. The action is completely irreversible and hence not opted widely The
American retail king, Amazon which is largest online business for retailing in the world
started in 1994 as an online bookstore. Amazon entered the Australian market in 2012 with
the launch of its online web services. It introduces its kindle store and after a year expanded
customer access to its overseas products.
Analysis of the Australian retail market and impact of Amazon on it
The market remained quiet for next 4 years until April 2017 when it formally
confirmed to bring out full retail offerings in Australia. With the entry of Amazon in
Australian market, according to ASX listed retailers approximately $1.6 billion market
capitalisation was lost. Its last updated annual revenue was USD 135.99 billion, which is
twice of its competitor’s revenue JD.com, eBay and Alibaba (Treadgold, & Reynolds, 2016).
The online business and promotion of the virtual world have resulted to change the business
perceptive of the retail business functioning and influenced clients to go for online shopping
window. The main core competency of the dashboard online mechanism of Amazon was
based on the cost leadership, time saving process and less complicated process. Amazon had
limited Australian websites at the time of its launch; previously it was working only in kindle
store and Amazon Web Services. But Australians were buying from its US site from last so
many years. In 2017, about 4.6 million Australians visited Amazon Us site. Initially
competitors were planning to stand in market by doing what amazon does but now they are
changing their strategy by doing what amazon doesn’t. To be in the market, Australian
businesses are registering their products on amazon. Amazon is introducing algorithmic
economy in Australia to get fast respond in changing market expectation (Grimmer, et al.
(2017). This new platform allowed retail business organizations to tap new potential clients

who was facing issues like high rush in malls, traffic and cumbersome shopping process. The
newly introduced dashboard mechanism not only attracts more clients but also strengthen the
overall turnover of the Australian retail industry at large.
It is becoming a huge opportunity for the Australian retailers to increase their sales
and customer base. For some of the medium size retailers Amazon is an opportunity for
growth rather than a threat. Amazon’s prime scheme was becoming a ‘critical competitive
weapon’ in the market. The Munro Group who is the largest player of $3 billion Australian
footwear market having 285 stores nationwide and whose turnover is more than $300 million
is floating its shares on ASX (Lima, 2015). Analysts Morgan Stanley said the upcoming
offers will be improved in coming time which will have a big impact on local retailers. Many
ASX listed retailers found that sports, grocery and apparels in line with leading retailers are
13 % cheaper than Woolworths and Coles. Entry of Amazon in Australian market challenges
the economy of already established businesses by impacting its retailers pricing, channel mix
and supply chain. In its retailers point of view market place is creating an incredible
competitive environment for its third party sellers which is reducing excess profits in the
retail industry. Amazon has set its prices for its long term consideration than short term
profits. Is has made a broad ecosystem of services and products by not only selling its own
products but by selling third party product also. Amazon has made its market strategy in a
way which forced the Australian market to change their business models and to be prepared
with the sustainable cost structure and allocation of capital. The main reason for the growth
of Amazon in Australian market was its lower price, special offers and packages for the
customers (Jones, ET al.2015). This strategies adopted by the Amazon forced other retail
business stores to lower down their cost of business offer its services and products at least
cost. Amazon is lowering down the prices as low as a third what the Australians were paying
earlier. Australian businesses and retail business chains are bracing themselves for the
imminent arrival of Amazon (Ritala, Golnam & Wegmann, 2014). However, all the ASX
listed retail busienss chain have faced issue of high cost of capital and low return on capital
employed. If proper financial concepts are not followed by these retail organizations then it
might result to high financial leverage and destruction of the busienss in long run.
This situation opens up huge possibilities for the online marketplaces like amazon. It
compelled the world to name it the largest internet retailer. This is based on the online
marketplace business model. In this model usually an ecommerce website or an application is

put to use. A number of different sellers and/or companies use that platform to sell their
products. The marketplace is just acting as a middleman on return of certain commission
(Belk, 2014).
Amazon got launched in Australia on 23rd November 2017. Earlier amazon just used
to cater kindle store online. But from then on, the company has opted to enable the buyers
experience a fully- fledged shopping experience. More than 20 categories have been launched
on the company’s website with the address amazon.com.au. Just when the news of the
amazon launch got aired, a number of small and medium sized Australian businesses already
signed with amazon. The businesses did that to get the ability to sell their goods nationally
and even internationally (Grimmer, 2017).
The launch of amazon has severely impacted the retail market in Australia. Amazon is
selling the third party goods as well as the in house launches. The deliverables offered by
amazon are far better than anyone has ever imagined. The whole market is threatened by the
offers made live by it. The unique quality of amazon is its fast delivery service (Ritala,
Golnam, & Wegmann, 2014). The delivery time is almost three hours which is further
lowered down to two hours, when prime service is subscribed. The strategy behind is the
setting up of warehouses at different locations to cater the needs of all the buyers within time.
The retailers in Australia are facing different outcomes. The reason is their operating
scale. Mixed reactions are observed in the market. The small retailers are seeing the launch of
amazon as a good and golden opportunity. Whereas, the big retail chains like Myer, Harvey,
Norman, EB Games, and JB Hi-Fi are on heat. They can feel the real stress of their sales
getting declined due to the launch of amazon (Zentes, Morschett, & Schramm-Klein, (2008).
This low level of profitability in the initial time may result to high financial leverage to this
online retail organization.
Launched different categories of Amazon
Talking about the small retailers, a rush can be felt. Amazon has freshly launched
different categories over 20 in number. These include kindle, books, toys, personal
computers, and electronics. This has enabled the small retailers to come online with their
business through amazon marketplace. They are not in a position to open their personal
online marketplace. So, with the launch of amazon, they can easily do so with payment of

certain commission. By doing this, a larger customer base can be formulated and retained.
However, the benefits are not as clear as they seem. Certain businesses are still reluctant to
get online. Being online requires remaining active regarding the stock available. Regular
updating of products as per availability is required. Some conventional sellers are unable to
do with this requirement. This calls for reluctance in their minds regarding the idea of using
this kind of e commerce. As a result, the competition that they were already facing gets
increased (Devinney, Yip, & Johnson, 2010).
These small retailers who were already thriving for a survival are pushed in more
haphazard scenario. Their sales have dropped due to the customers getting switched towards
the e commerce marketplace. Further, they can nowhere compete with the amazing benefits
that online business house and a tech giant Amazon is able to offer. There is hardly any small
retailer that is able to offer home based delivery. Further the offers are not as attractive as
offered by amazon. A complete roll out is faced by those small retailers who are no turning
online (Kuebler, et al. 2018).
Main players of Australian Retail industry
When the large retailers of Australia like Myer, Harvey, Norman, EB Games, and JB
Hi-Fi are discussed, the competition is much stiff. These giants are already competing among
themselves to get a larger market share than the other. They are already lowering down their
profit margins by offering certain offers to lure more customers. With the launch of amazon,
they are certainly facing a huge setback. With all the items that are being sold by these
market giants, amazon has launched its in house production. This has allowed the customers
to choose from another variety for the same product. The prices for these are reasonable as
amazon is able to achieve economies of scale. A higher transparency is offered to the
customers (Shi, et al. 2018).
A recent study also reveals that the effect of amazon launch will be the highest on the
electronics and toy market. As per latest statistics, it is expected that the amazon will be able
to cover over 8 % of electronic market in a time frame of five years as compared to around 11
% in a time frame of 10 years (Hong, Duan, & Zhou, 2017). This will be huge push back
reason for already existing and successful store like JB Hi-Fi. Further, the company is found
to have selling consumer electronic retailer goods at a price which is approximately 15 %
cheaper than the other retailers selling that category (Mustaffa, & Beaumont, 2014). The

earnings of JB Hi- Fi are expected to get downgraded by 40%. The reason is average sale
dropout by approximately 10 %. With the fall in earnings and sales of JB Hi-Fi, the share
price of the company has also fallen to $ 24.03 which amounts to a drop of 1.2 percentages.
JB Hi-Fi is facing a dropout due to the electronic appliance upsurge brought by amazon. On
the other hand Harvey Norman, who is dealing in furniture and large appliance since ages, is
expected to experience an earning dropout of 30 %. The share price of the same has come
down to $4.10 showing a fall of 1. %. As same observed in the case of JB Hi-Fi, the sales of
Harvey Norman are also expected to fall by an approximate of 10% (Yang, 2018).
Australian Retail market condition
The condition has been worsened for the retailers because the consumers like the whole idea.
Amazon launch seemed like a Christmas gift for the Australian population. The consumers
have got a huge choice to select from. This has increased the bargaining power that the
customers earlier had. The consumers can now choose a same product from a lot number of
suppliers. The comparison can be made easily among all the suppliers at the same time. This
has encouraged the customers to use the amazon marketplace instead of the old and
conventional suppliers. There is no restriction on the consumers to resort to the old and
monopolistic suppliers. This freedom that the amazon launch has offered has asked the
retailers to bring about a change (Greenberg, 2018).
The reasons which has led amazon to hit the retailers hard are discussed
herein. The most significant advantage offered to consumers is choice of selection. Whatever
the consumer can think of buying is offered at a single website. There is no chaos in
discovering different brands. Moreover, the products are available for sale at cheaper prices
than in the market. Further, amazon offers feedback counter and review option. This way any
consumer review can be placed to be made visible to the whole public. This helps the
potential customers to make a wise purchase decision (Sorescu, et al. 2011). Any grievances
of the buyers can also be conveyed to the sellers. A two way communication is made
possible. The other advantage is shipping benefits that are just beyond the reach of any other
retailer. The customers are highly attracted by the same. Not only the timing of shipping, but
the facility of free shipping over $ 49 is spacing the market hard. Along with the local goods
amazon is offering the customers an option to get internationally developed goods with an
ease. Apart from this, amazon is offering easy return and refund facility to the customers. If

there is any quality compromise in the product, or if the customer no longer wants the
product once it’s shipped, he can easily return the item (Pinto, et al. (2017). The refund shall
be generated on the spot for him. And in case, the consumer feels any risk of paying before
getting delivery, he is also getting an option to pay at the time of delivery. The payment could
be made either in cash or through a debit or credit card. It is totally at the will of the
consumer, that how he wants the payment to be made (Kuebler, Pauwels, Yildirim &
Fandrich, 2018).
Impact on the Australian retail market
Researches have made it clear that amazon s going to be in the list of largest retailer of
Australia in a span of a decade. Although the food supermarket giants like Woolworths and
Coles are not likely to be affected as amazon fresh is not yet launched in Australia. But as
already mentioned, the market has devastated for earlier time big retailers like Kmart, JB Hi-
Fi, and Harvey Norman (Yang, D. 2018). The sales of Mayer are going to drop out by around
31 %, whereas for Metcash the drop is expected to be 21 %. The statistics have made
estimation that around 14 % of online market would be seized by amazon in a couple of
years. An amount of around $ 12 billion is assumed to be made by amazon from the online
trade it has launched into (Devinney, Yip, & Johnson, 2010).
Commonwealth bank of Australia has conducted a survey regarding the launch of
amazon in country. Several results that were obtained show a differential pattern of reaction
from different retailers. It is learned that amazon is looked as a threat by around 41 %
retailers. On the other hand an opportunity is assumed to have been created with amazon
launch by 11 % of the retailers. Some 5 % of the retailers have already started working on the
strategies that can help in coping with the business of amazon. While 33 % of the retail
business houses are trying to provide a better experience to the customers so that they can try
to beat amazon. However, another option to lure the customers is to offer better products.
This is being adopted by around 30 % of the retailers of Australia (Yang, 2018). The retailers
are now forced to change their policies of sale. A few retailers have now started to provide
same say delivery options to the customers. Yet they cannot compete with the two or three
hour delivery that the company is offering. The other changes brought by the launch are the
cut down in the selling prices by the retailers. They are in a tough stiff to retain their loyal

customers who are flowing towards the luring offers set by amazon. The whole market is
turned upside down (Skelton, 2017).
In a nutshell, a clear idea of amazon launch is that, it has created opportunities as well
as threats. The small retailers who are ready to get their businesses online are able get
massive opportunities to strengthen their business. This is going to happen by adding new
customers. However, the big retailers are surely facing the stiff. All it requires is a proper
strategy to be framed to get the competition swayed right. More than the discount offers,
there is a need to improve the customer service quality. This shall ensure a long term success
as well as retain the customers. The market is surely facing serious repercussions, but it is
surely a short term affair. In the longer run, market stability with customer benefits is sure to
be achieved. The increased business outcomes and efficient business strategies of the
Amazon has shown that if retail business organizations in Australia wants to beat the
Amazon then they will have to develop creative and innovative business functioning.
Nonetheless, big rivals such as JB HI FI, Woolworths and Wesfarmers have adopted the
advance cyber computing system process in its business to strengthen the online business.
The main impact of Amazon business on Australian retail business is related to its strong
connection with the clients and the system process developed on international level. The
easy flow of products and services to clients from the factory and development of dashboard
system which could connect clients and seller in the virtual world is the best strategy of
Amazon. This strategy will not only strengthen the overall client’s satisfaction level but also
allowed them to trade on the new platform without getting bothered for shopping. It has
eliminated issues like traffic, rush and issues related to the real trade. It is considered that if in
Australia, business sellers are not having their online business channels then they will fail to
continue their business in long run and may face high sustainability risk. This technology was
firstly introduced by Amazon with a view to strengthen the overall satisfaction level of clients
in buying products and service through the safe online dashboard mechanism. After
evaluating all the details and case study of the business of Amazon on the Australian retail
business, it could be inferred that all the retail business organization are more inclined
towards adopting the advance technologies and quality products and services to attract more
clients. This level of increased competition has resulted to providing the utmost client’s
satisfaction. There are several other factors which have been positively and negatively
impacting the business growth and retail business functioning. It is analyzed that many big
retail business organization has faced high tough competition due to the developed core

competency of the Amazon in use of advance technologies and system process. This process
not only attracted more clients in Australian retail market but also assisted organization to
create value on its investment in effective manner.
Conclusion
There are several other facts which need to consider such as cost leadership, product
differentiation strategic program which have allowed Amazon Company to keep its business
ahead of those of others in retail business sectors. The biggest giant competitors of Amazon
such as Harvey Norman, JB HI-FI Company and Harvey Norman have faced tough
competition in use of advance technologies and cost leadership business program in long run.
This has increased the overall outcomes and industry turnover at large. Amazon has
contributed 12% of the overall turnover of the Australian retail business which is the biggest
number of contribution made by the single player in market. Nonetheless, ASX listed retail
busienss chain have faced issue of high cost of capital and low return on capital employed. If
proper financial concepts are not followed by these retail organizations then it might result to
high financial leverage and destruction of the busienss in long run.

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