Updated December 26, 2018 08:28:40

Photo: Amazon's first year in Australia was not as disruptive to the retail industry as many had expected. (ABC News: Alistair Kroie)

Amazon has not exactly triggered a "retail apocalypse" in the last 12 months, much to the relief of local retailers.

Many customers, filled with sky-high expectations, were underwhelmed by the limited product range when the online giant launched its much-hyped Australian website.

But for others, Amazon's most memorable moment in 2018 was its controversial decision to block Australian customers from shopping on its international websites — because it did not want to comply with new GST laws.

That was followed closely by its spectacular backflip months later, after it had copped a massive backlash from irate customers.

Despite that, analysts say Amazon remains on track to dominate the Australian retail landscape in a few years, and that it should not be underestimated despite a lacklustre start.

"They're definitely playing the long game — and not in it for the short haul," said Anastasia Lloyd-Wallis, chief insights officer at the Retail Doctor Group.

"Amazon is very much in line with its plan, a two-year flag-planting strategy, during which there will be significant market impact."

"It generally takes them up to seven years to gain market share — like in Canada and Europe — and fulfil their strategy."

Photo: Amazon's sales have surged to $252.6 billion in two decades, while its net income grew to $4.3 billion. (Thomson Reuters Datastream, ABC)

How local retailers are reacting

Many of the local big-name retailers have focused on improving their online strategy to combat the perceived Amazon threat.

Supermarket giants Coles and Woolworths, for example, offer free same-day delivery — for those who spend more than $150 and $300 respectively.

Customers who pay the $59 yearly subscription fee for Amazon Prime receive free (but slightly slower) two-day delivery — regardless of how much they spent on online shopping.

Amazon is going to squash existing retailers and consumers may not benefit that much, writes Stephen Letts.

In addition, big-name incumbents like Harvey Norman, JB Hi-Fi and Myer have introduced "click and collect" schemes in the past couple of years.

What they also have in common is the 25 per cent drop in their share price over the last year, from peak to trough.

"The most important strategy … is one-hour click and collect," said Gary Wheelhouse, Harvey Norman's chief digital officer.

"The fact that you can go online and choose the product in your local store and pick it up in one hour — that's a real game-changer."

Another advantage of this arrangement for retailers, according to consumer studies, is that the customer is more likely to browse the store and make an impulse purchase, after picking up the goods they ordered online.

"There's a level of instant gratification that you can't get with a pure-play online retailer," Mr Wheelhouse said.

"The mixed online and physical experience isn't going away — lots of customers want to talk to real people."

How's it performing in Australia … and elsewhere?

Amazon is secretive about how its Australian business, or indeed any of its other foreign markets, is performing.

As retail sales falling to a 4.5-year low means the outlook for an economic recovery looks bleak.

But some insight about its local performance in the first month can be gleaned from a financial statement, filed by Amazon with the Australian Securities and Investments Commission (ASIC) earlier this year.

Its after-tax loss was $8.9 million, from revenue of $17.4 million in the year ended December 31, 2017.

That, however, was a small drop in the ocean compared to the staggering $252.6 billion sales revenue that Amazon earned last year, worldwide.

The online retailer was left with a much lower full-year net profit of $4.3 billion after deducting its exorbitant costs and expenses.

Outside Australia, the e-commerce retailer has also launched in Singapore, China, Japan, India, Brazil, Turkey and Europe.

Its most recent quarterly results, filed with the US Securities and Exchange Commission, also provide a clue about the massive losses it sustains in foreign markets.

Amazon (US, Canada and Mexico) earned $US5 billion ($7 billion) in operating profit, in the nine months leading up to the September quarter.

But it suffered a total loss of $US1.5 billion ($2.2 billion) across all other countries where it set up a base, including Australia.

Success at any cost

If Amazon is able to replicate its US "success story" in Australia, that is a reason for incumbent retailers to worry.

The countries in which Amazon has the greatest success are the ones which have the highest concentration of Prime subscribers, according to Ms Lloyd-Wallis.

Prime is a subscription service, with more than 100 million members globally, and it launched in Australia six months ago.

The key benefits to its customers are video and music streaming (like Netflix and Spotify), e-books, and free two-day delivery.

Once Amazon customers sign up to the Prime "ecosystem", they tend to be more loyal to the brand, spend higher amounts due to the "massive convenience" of the product, and are more likely to engage in impulse buying, she said.

Around 50 per cent of all online sales in the United States are placed through Amazon, according to estimates from several retail analysts.

Over the last two decades, Amazon has focused aggressively on growing its online sales, by offering fast delivery and generally lower prices than its brick-and-mortar competitors.

Its meteoric rise has coincided with the collapse of several big names in the US including Borders, Tower Records, and more recently Toys 'R' Us and Sears — plus thousands of store closures for JC Penney, Macy's, Michael Kors and many other retailers.

The inverse relationship between Amazon's rising stock and the declining fortunes of its competitors led to a phrase, "the Amazon effect", being coined.

Amazon's market value on the New York stock exchange is currently $933 billion.

It briefly cracked the $US1 trillion mark in early-September, before its share price plummeted 34 per cent — amid a Wall Street sell-off sparked by fears of slowing global economy and the US-China trade war.

Follow David Chau on Twitter @chaudave.

Topics: business-economics-and-finance, company-news, retail, australia

First posted December 26, 2018 06:07:01