Amazon Prime is a lit fuse for Australian retailers
I don’t have to tell you that Amazon is now on the ground here in Australia. Before we go on, I should mention I'm an Amazon shareholder.
If you’ve been near a major motorway, or in front of a TV screen for any length of time, you would have seen the company’s advertising. My guess is that it’s a global ad campaign that’s been rolled out here, too, but the closing line, “easy az” using the a and z from the company’s logo is a clever execution that does feel particularly Australian.
Most recently, the launch of the company’s not-so-secret weapon, at least in the United States, was announced. Amazon Prime, its membership program, is now available in Australia. On the surface, Prime is a way of accessing free shipping (from here and, impressively, the US in many circumstances) but also a bevy of included Kindle titles as well as licensed and original TV shows and movies. That’s not a bad deal for the $60 per year.
If Australian retailers are unconcerned, figuring Amazon didn’t make a huge splash at launch, and that the current range is both small and expensive, they’re wrong. Oh, they’re right that the range is small and, in parts, expensive – at least that part of the range that is from some selected suppliers using the Amazon fulfilment program who are gouging unsuspecting Aussies – but that misses the point.
In the US, Amazon has 100 million members. That’s around one out of every three Americans. But it’s around eight out of 10 households. Now, to be sure, some households will have multiple people with Prime memberships, but whatever way you look at it, it’s a big deal.
The range is so complete, the pricing so competitive and the service so good, it’s almost negligent to not have a Prime membership. And according to at least one estimate Prime members spend, on average, $US1300 ($1768) each year with the ecommerce giant.
Prime buys not only loyalty but consumer preference. Once you belong to the program, you’re often, perhaps almost always, going to think of Amazon first. Which is why the company has the program in the first place.
Ask yourself; other than the groceries, are there any retailers you spend almost $1800 each year with, every year? Even if it’s half of the proportion of households spending half of that number here in Australia (and I doubt it’d be that low in the fullness of time) that’s 3.4 million members spending a total of $3 billion in retail sales. Those sales will come from somewhere, and that estimate could be conservative.
And while Amazon doesn’t get the focus of, say, Netflix when it comes to streaming, a Prime membership is likely worth the price just for the catalogue of movies and TV shows including Originals such as the new series from the ex-Top Gear presenters and a host of licensed movies, documentaries and comedy series. Which makes the free, fast delivery essentially costless, so why not?
Which, it should be said, is exactly why Amazon offers the bundle in that format. And why it’s been so dominant in the USA.
Foolish takeaway
Does that make its dominance in Australia a slam dunk? No, it doesn’t. There are myriad reasons why Amazon could stutter, falter and even fail. But does it make that dominance likely? I think it does. Short of a retail revolution here in Australia – and our retailers have had plenty of opportunity to prepare innovatively – Amazon has the offering, the form and the scale to succeed in a big way here.
Some retailers, with a great in-store experience and a differentiated product range, will thrive, despite Amazon. Many will struggle. And yes, some will die. Only an ostrich with a fondness for the cool, dark sensation of being neck deep at the beach could think otherwise.
Scott Phillips is the Motley Fool’s general manager.