Amazon has been quietly operating in Australia for almost two years, so quietly in fact that its launch Down Under has been largely perceived as unsuccessful.
But the world's largest internet company does not do business by halves, and its "soft launch" is strategic, with Amazon set to replicate strategies that have made it successful in other markets, a report by global financial services firm Morningstar outlines.
When Amazon launched its local domain across the Tasman, analysts watching its expansion closely were surprised by the limited catalogue of product made available, and the lack of impact it was anticipated to have on local retailers.
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Morningstar's Consumer Observer report states that Australia will "become a meaningful contributor" to the e-commerce giant's top-line growth in the next 10 years.
It estimates that A$23 billion ($24.6b) in revenue will come from the Australian market alone by 2029.
"We believe Amazon's playbook in the region will mirror international geographies, with expedited shipping spurring Prime membership growth and Amazon's content offerings then unlocking future membership subscription/monetisation opportunities," the report outlined.
Morningstar anticipates shoppers Down Under would come to rely on the e-commerce giant for almost everything, driven by Amazon Prime subscriptions, similarly to how shoppers in the United States and Britain do.
The report forecasts that Amazon's international online retail margins will "turn positive in 2021", and that "consumers will continue to utilise Amazon", even during a recessionary environment, as order delivery times continue to improve as the company expands its distribution network.
Morningstar estimates Amazon's online retail businesses are worth US$450b ($715b), and will continue to outperform rivals in years to come.
"We still identify multiple paths to margin expansion for the company's online and physical retail segments in the years to come, even against an uncertain global economic backdrop," RJ Hottovy, consumer equity strategist, said in the report.
Morningstar equity analyst Johannes Faul, based in Australia, said Amazon's launch into Australia had been less impacted than "initially feared" but would still have significant impacts, such as store closures, on the sector.
"We don't predict an Australian "retail Armageddon", but rather a slow demise of the traditional retail model based solely on physical stores, especially in categories with relatively high online penetration," Faul told the Herald.
"We expect Amazon to gradually build up its customer base over the next decade. In 2029, we estimate close to 30 per cent of all Australian online retail sales to be transacted on Amazon's platform, up from an estimated 3 per cent in fiscal 2019. This compares with other international markets such as Europe, Japan and India where Amazon has at least 20 per cent share of the e-commerce market today."
Bricks-and-mortar retailers operating in markets selling product categories with high online penetration, such as department stores, would be hit the hardest, Faul said.
"We expect significant store closures as a result of a shrinking addressable market. Hardware and auto parts are among the more fortunate categories, due to high shipping costs relative to product values and the immediacy of need," he said.
"If Amazon offers comparable delivery times for a large range of products in New Zealand, we can see a similar longer term impact on incumbent retailers there too."
Analysts here believe it is only a matter of time before Amazon launches a local domain in New Zealand. Whether it will set up physical fulfilment centres here, as it has in Melbourne and Sydney, is another matter up for debate.
Amazon's "slow start" in Australia was no surprise, said retail marketing expert Ben Goodale. Australian and New Zealand consumers' way of shopping would have to shift over time before the business' potential was realised in this part of the world, he said.
"I don't think anyone would think that it means they are going to fail."
Amazon could realistically switch on operations in New Zealand next year, Goodale said, though adding that it was not likely.
"They will come here, there is just not going to be any hurry. We're an insignificant global market even if the census says we are nudging up a wee bit and will be five million people by next year. We're only 20 per cent of the size of Australia, and [Amazon] will want to get Australia to a mature stage before they come here."
Chris Wilkinson, managing director of First Retail Group, said Amazon was currently focused on strengthening existing markets.
"Amazon in Australasia is a sleeping giant from a consumer standpoint," Wilkinson told the Herald. "We believe they are focusing on further strengthening existing markets where they can leverage existing or scaling infrastructure - such as the UK and Europe.
"They'll also have issues like Brexit and the trade wars that will be concerning in their biggest markets - so Australasia will be well down the priority list for the attention of their leadership teams."
Wilkinson said an Amazon launch in New Zealand still remained a question of "when" and how", not if. "[It] will only be a matter of time before they ramp operations in the region. Fortunately, many businesses have been able to learn from what has happened overseas and been able to make smart moves in e-commerce and differentiation to enable some form of competitive edge."
Goodale said he did not believe Amazon would disrupt Australasian retail sectors to the same extent it had in the US and Britain, at least not in the short to medium term.
But he agreed with findings in the report, that Amazon would "win the hearts of consumers" in Australia and New Zealand due to convenience.
"Although their site isn't the prettiest site in the world, it doesn't need to be, because it is just so easy to use.
"[Prime as a service] is proving to be a really powerful weapon. If Amazon does come here, it will be well-received because they load it full of value and benefits," he said.
"There's an interesting play with The Warehouse launching TheMarket offering; they are obviously trying to hose down a sector which they think Amazon will want to operate in, but that site is very pretty, so it will be interesting to watch."
Morningstar estimates Amazon has more than 90 million Prime subscriptions in the US alone - in approximately 65 to 70 million households.
Its analysis shows that Amazon's international markets, outside of North America, would operate at a loss for the next five years as it heavily invests in early-stage markets. It outlines that Amazon would continue to be popular with consumers worldwide, even during periods of weak economic performance.
"Our analysis shows that e-commerce companies react more like defensive retailers during periods of economic softness, with consumers still relying heavily on marketplaces like Amazon because of competitive pricing and the convenience of expedited shipping."
It forecasts modest operating margin expansion from Amazon's North American markets as membership through Prime subscriptions and a "shift to third-party sales" would offset one-day shipping.
Revenue from Amazon's North American online retail business was estimated to be US$118b ($187b) last year. Morningstar anticipates its 2019 revenue will increase by 15 per cent to $136b.
The company had mixed results in Australia in 2018, the report outlines, generating A$260 million ($412m) in revenue. Amazon Australia has slowly been increasing its fulfilment capabilities in that country.
"Amazon will replicate many of the strategies that have made it successful in other markets, namely lower prices and reliable one- and two-day shipping. Over time, we expect Australia to become a meaningful contributor to top-line growth," Hottovy said in the report.
"Besides sharper pricing and improved fulfilment, we expect additional product categories to drive site traffic and underpin sales growth."