Delivery speed: the next battleground for retail stocks
Delivery speed will be the next battleground for Australian retailers as Amazon's local presence transforms customer expectations.
Mentioned: Amazon.com Inc (AMZN)
Delivery speed will be the next battleground for Australian retailers as Amazon's local presence transforms customer expectations, says Australia's largest delivery network operator.
Speaking at this weeks' Citi Investment Conference, Australia Post’s general manager for eCommerce Ben Franzi said despite the global retail behemoth's relatively slow start, its promises of same-day-delivery has awoken Australian consumers up to the ideal customer experience. Other e-retailers will be forced to respond, he said.
Chairman of Next Athleisure and self-proclaimed retail veteran Hilton Seskin echoed Franzi's comments, characterising Amazon as a "sleeping-giant that will erupt” and be a shot in the arm for the online retail market.
"Amazon has had challenges in establishing itself in this market, but that doesn't mean they won't come out of the gates fighting," he said. "I think it woke a lot of retailers up to a place where they were actually forced to say, ok, we've got some competition coming."
Hilton however somewhat pushed back on the idea that speed is the be all and end all for retailers, saying that reliability is especially important for Millennial consumers – those reaching young adulthood in the early 21st century.
"Yes, there are customers who'll buy a dress on Friday for that night, and return it Saturday morning," he said. "But with our brand JD Sport, where we are still shipping product out of the US, the customer is happy to wait five days for the right product.
"There is a big part of this where you've actually got to say it's not all about speed – it's about what's the expectation and as long as you need that expectation you'll be fine."
Franzi said the economics of same-day-delivery would play into retailers and customers decision to buy. To illustrate his point, Franzi asked the audience to raise their hands if they'd pay $10 for same-day-delivery of a $100 jacket or wait three days for the item to be delivered for fee. Almost all took the free option. Then he decreased the same-delivery cost for $2. Almost all said they'd pay the delivery fee.
Franzi says traditional, physical retailers with networks Amazon cannot match are best placed to do click-and-collect delivery, but that issues with in-store and stock management remain.
Morningstar equity analyst Johannes Faul agrees, saying click-and-collect eliminates the delivery cost for both the consumer and retailer, with the additional benefit of driving traffic to stores.
"This opens the door for impulse purchases and is an opportunity for trained sales staff at the pick-up point to cross-sell or upsell products," he said.
Amazon: don’t be fooled by slow start
Amazon launched itself into Australian market to much fanfare in December last year. In a short period, the global retail behemoth has put a second warehouse on the ground in Sydney, gone live with its food and grocery offer Amazon pantry, and launched a Prime subscription based free two-day delivery service. Results however have been mixed, with the retailer only making modest inroads.
However, Faul doesn't believe this means that the firm will remain a niche player. In a special report released yesterday, 
'Aussie Retail Investors: Don't Be Fooled by Amazon's Slow Start', Faul said while Australian retailers saw little for Amazon in fiscal 2018, that this will gradually shift as the retailer ups the ante.
"We expect Amazon AU to win the hearts and minds Australian consumers, but not by dropping prices dramatically," he said. "Instead we see the online giant offering industry-leading delivery times and the lowest delivery fees, while also locking in customer loyalty with Prime.
"We expect Amazon AU to improve delivery times as the national distribution network expands, capturing market share."
Faul says Amazon AU has started on the front food, offering the cheapest delivery fees for Prime subscribers, while shipping costs for non-members are at the lower end of the range.
Hardest hit, according to Faul, will be the brick-and-mortar retailers operating in consolidated markets and selling product categories with high online penetration.
On the other hand, retailers with the greatest value-for-money, cheapest and fastest delivery options, and the finest service when seeking advice or returning unwanted products are the best placed to complete.
"We don't predict ban Australia "retail Armageddon", but rather a slow demise of the traditional retail model based solely on physical stores."
Hilton called on shopping centre landlords to think creatively about how they are going to bring people back to the malls and how to utilize their space.
"At the end of the day, the landlords are going to dictate the survival of the bricks and mortar stores. If the landlords can adapt their model and actually start thinking outside the box and say, 'we have this space, we have this great resource, how do we bring life back into it'.”
Leading into the holiday season, Franzi boldly claimed that November, backed by Black Friday and Cyber Monday, will be bigger than December for retailers. He also challenged Australian retailers to with an event comparable to Alibaba's singles day – a online sales event which brought in a record $33 billion in 24 hours.
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Emma Rapaport is a reporter with Morningstar Australia, based in Sydney.
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