The ‘Amazon Effect’ lowers retailers’ confidence

Professor Jonathan Elms

Massey University, October 7, 2017

Massey University’s latest Big Issues in Retail survey shows business confidence has declined since 2016, with the “Amazon effect” cited as the main reason for uncertainty. The survey, now in its second year, is conducted by Massey University’s Centre for Advanced Retail Studies (CARS) in collaboration with Monash University (Melbourne) and Retail NZ.

Just under 40% of survey respondents expected their sales to increase in the short-term (compared to 50 per cent last year). There was also an increase in the number of retailers who expected their sales to decrease – 18% compared to just 12% a year ago.

Amazon in New Zealand

Comments in the open question section of the survey showed retailers were concerned about Amazon establishing a presence in New Zealand and possible changes to the tax system after the election.

“Retailers were particularly concerned about the combination of Amazon’s arrival and the loss of sales due to GST charges.

Domestic retailers have to pay GST and overseas retailers do not and hence there is effectively a cost disadvantage for local businesses.

Amazon is a very large, efficient retailer that is able to do things cost effectively.

Double disadvantage

But it would be even cheaper because they do not pay GST on their imports under $400 into New Zealand. Domestic firms see that as a double disadvantage to their business.

While 57% of respondents said that the GST issue was leading to “negligible” losses, 21% estimated that they were losing 33% or more of sales.

Professor Elms says Amazon will have the largest impact on retailers that compete on price. “If you look at what has happened in overseas markets, shopping malls are struggling and department stores that compete on price have been obliterated.”

Emerging opportunities

But the “Amazon effect” is not all bad news.

We are seeing some Kiwi retailers proactively investing in their in-store experience and ensuring their physical and online sales platforms are completely integrated.

They need to if they want to compete with Amazon, but it also offers a better experience for consumers.

Meanwhile, smaller retailers can also use Amazon as an additional platform to sell their goods.

Looming skills shortage

The survey also showed continued concerns about skill shortages in the sector.

The top two most frequently-mentioned human resource priorities in both 2016 and 2017 were staffing and training.

There is concern that New Zealand doesn’t have a strong enough talent pipeline. We definitely have skills gaps in buying, merchandising and digital, and this will only be exacerbated as retailers compete with the likes of Amazon.

The skills and competencies required are becoming a lot more sophisticated – retailers need staff that understand how business models are changing if they are to successfully integrate their physical and digital platforms.

Potential problems

Retailers are grappling with potential headaches around immigration caps but, in the longer term, the industry needs to invest in more and better training and development to build the pool of homegrown talent.

The Big Issues in Retail survey findings can be viewed here: http://bit.ly/retail-survey17

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Photo Caption:

Professor Jonathan Elms

(Picture Courtesy: Massey News)

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