The graph that shows Amazon is going to be massive

ANALYSIS: Amazon is coming to Australia, and if these projections are correct, it’s arrival is going to be massive.

Amazon really is coming to Australia. And Aussie companies should be very afraid.

ANALYSIS

NOW Amazon is coming to Australia, really, truly and officially, there is one thing to know about it. It is massive.

Amazon’s revenue dwarfs that of Australia’s biggest retailers – it is more than twice the size of Woolworths, which owns Woolworths supermarkets, Big W, and, and also more than twice the size of Wesfarmers, which owns Coles and Bunnings.

In fact Amazon makes more revenue than both of them - and a handful of other Aussie retailers to boot.

Amazon is not purely a retailer. It provides TV streaming services and cloud services and logistics too. Neither is it the world’s biggest retailer, it is true. Walmart is. Costco and Aldi – which are present in Australia - were both bigger than Amazon when they showed up in Australia a few years ago.

Costco and Aldi are smaller than Amazon now. And that is the most amazing thing about Amazon. It is growing incredibly fast.

The implications of a large retailer coming to Australia are substantial. The implications of a fast-growing retailer coming to Australia are big. When the retailer in question is both so large and fast-growing, the shockwave could be massive.

And that shockwave could hit during 2018.

There has been a lot of rumour about Amazon coming to Australia, but with an official press release during the week and 158 jobs now advertised on their website, the time for rumour is over.

The big question now is: Will Amazon thrive here?

IS AUSTRALIA TOO EXPENSIVE?

Some local retailers have suggested Amazon would find their business model didn’t work well here. Australia’s distances are much higher than most countries Amazon operates in and our population is far lower than America. Furthermore, wages are much higher than in the USA and our working conditions better.

In the US, Amazon is well-known for using low paid workers in its warehouses. They do not enjoy the same workers rights that Australians enjoy. One famous story tells of an Amazon warehouse with ambulances parked out the front on hot days. Workers would regularly collapse from heatstroke, but sufficient airconditioning was not in the budget.

Would Amazon really be able to do the work of warehousing and logistics successfully here with our tougher laws?

Their imminent arrival suggests Amazon thinks it can. And it may have a way to get the work done without worrying about wages.

While discussing Amazon’s recent financial performance, Amazon chief financial officer Brian Olsavsky dropped a massive hint that Amazon is replacing workers with robots as fast as he can. He was asked a question about why the company was spending so much on warehouses (which it calls “fulfilment centres”), and his response indicated they are now far more than just sheds with shelves.

“The fulfilment centres … with the robotics technology tend to be more capital intensive than prior versions of warehouses and then generally have much better operating efficiencies,”

That suggests Amazon is spending more upfront to install robots, and getting big savings from doing so.

If a highly automated model of operations is what Amazon plans to roll out in Australia then far fewer jobs will be on offer than if they had used humans to do that work.

AUSTRALIA MIGHT HAVE BEEN “LUCKY” TO GET AMAZON

Amazon is famous for many things. But one of them is how low its profits have been. Despite billions in revenue, profits are regularly barely above zero. Instead of returning money to shareholders, Amazon uses that money to expand.

It puts growth ahead of profit, with the apparent intention of one day being among the world’s largest companies. To achieve that, Amazon chief Jeff Bezos is pouring a lot of money and attention on India.

If India keeps up its rate of growth, within ten years it can cease to be a poor country. Amazon’s strategy of getting in now makes sense. Being the favourite online shopping option of an increasingly wealthy country of over 1.5 billion people is probably the fastest way for Amazon’s CEO Jeff Bezos to become the world’s first trillionaire.

Spending money in Australia, meanwhile, is not such an obvious move. Most other countries where Amazon operates – USA, UK, Mexico, Japan, are several times larger than Australia. The only country Amazon serves with a lower population than Australia is the Netherlands. And that country is small in terms of land area, meaning not many warehouses.

So, Australia is an odd choice for Amazon. Even if its online retail model comes to dominate our retailers and enliven our lives, we will not provide hundreds of millions of customers.

The fact that Amazon has chosen to come here could suggest that while it pursues very difficult projects like making money in India, it also needs to hit some softer targets to provide profit as well.

The arrival of Amazon might be very good news for Australian customers. Only time will tell if it is very bad news for Australian workers and retailers.

Jason Murphy is an economist. He publishes the blog Thomas The Thinkengine. Follow Jason on Twitter @Jasemurphy

Originally published as The graph that shows Amazon is going to be massive