Amazon kills US retail en route to Australia

Amazon kills US retail en route to Australia

John Kehoe
Jan 8 2017

As Amazon prepares to expand into Australia to compete against bricks and mortar retailers, the American e-commerce behemoth is destroying traditional retailers in the United States.

In the wake of Amazon’s sales dominance during Christmas season, leading US retailers are slashing thousands of jobs, shutting hundreds of stores and suffering plunging share prices.

Former top US retail executive Steve Odland told The Australian Financial Review that bricks and mortar retailers were heading for a “slow moving train wreck”.

The former Office Depot and AutoZone chief executive said the transformational shift to time-saving and convenient online shopping with Amazon would cause second-tier shopping malls to become “white elephants” and cut the values of commercial real estate.

“The department stores are getting killed,” Mr Odland said.

“It’s because they are selling on price but you can get disintermediated on the internet with similar goods, quality and a maybe a lower price.

“This has been an enormous sea change and it has been driven almost entirely by Amazon.”

Amazon appears to have big ambitions for Australia’s $222 billion retail sector, having lodged more than 250 local trademark applications ahead of an anticipated opening later this year. Wesfarmers chief executive Richard Goyder, who oversees Coles, Kmart and Target, warned last year that Amazon will “eat all our breakfasts, lunches and dinners” unless Australian retailers become more innovative and competitive.

In the US, online sales surged an estimated 11 per cent to $US91.7 billion between November and the end of 2016, according to Adobe. In-store sales were only marginally higher.

Amazon accounted for 38 per cent of online sales in the holiday season, Slice Intelligence said. “It may finally be evident to all that Amazon is an existential threat that warrants very different thinking, different risk profiles, and different levels of investment,” Slice said in a report.

America’s biggest department store chain, Macy’s, said last week it would slash up to 10,000 jobs and close 100 stores, sending its share price falling 13 per cent.

Kohl’s shares fell as much as 20 per cent on Thursday after it reported that November and December comparable sales fell 2.1 per cent.

Sears Holdings, the operator of retail brands Sears and Kmart, announced it would close 150 stores and sell its Craftsman tool business, after announcing a 12 to 13 per cent drop in same-store sales for November and December.

All three retailers pointed to the detrimental impact of consumers shifting to buy items online.

“We believe that our performance during the holiday season reflects the broader challenges facing much of the retail industry,” Macy’s chief executive Terry Lundgren said.

Amazon said last week it had its “best ever” holiday season, shipping more than 1 billion items worldwide.

Prime Now, which offers one and two-hour deliveries in dozens of markets, accounted for 13 per cent of Amazon’s US sales in late 2016, as consumers rushed to buy last-minute Christmas gifts, Slice reported.

A few years ago industry experts predicted that apparel retailers would be insulated from the online phenomenon, but Amazon is on pace to become the top clothing seller in 2017.

While many traditional retailers are improving their online sales models, many are struggling to cope with less foot traffic and purchases in store.

Mr Odland, now the chief executive of the US Committee for Economic Development, predicted that general retailers would continue to struggle against Amazon.

“What they didn’t understand is people don’t want to drive to these super centres or malls, track around for a few hours and discover they don’t have your size because they’ve skinnied back on the inventory,” Mr Odland said.

Mr Odland served as chairman and chief executive of Office Depot from 2005 to 2010, head of AutoZone from 2001 to 2005 and was boss of supermarket chain Tops Markets from 1998 to 2000.

Retailers that can “survive and thrive” against online threats are stores that provide a unique experience or service that you can’t attain on the internet, he said.

Mr Odland said a luxury experience service such as a facial, or stores offering expert advice, such as auto parts sellers, were viable business models