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The Amazon effect: Kiwi retailers spooked by commerce giants

10 Oct 2017

Since 2016, business confidence has declined - and it has something to do with Amazon.

That’s according to Massey University’s latest Big Issues in Retail survey that cites the “Amazon effect” as the main reason for uncertainty and lack of confidence in the retail arena.

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.

Less than 40% of survey respondents expect their sales to increase in the short-term (compared to 50% last year).

There was also an increase in the number of retailers who expected their sales to decrease - 18%, compared to just 12% one year ago.

Lead researcher, Professor Jonathan Elms, says comments in the open question section of the survey showed retailers are 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,” he adds.

“Domestic retailers have to pay GST and overseas retailers don’t, so there is effectively a cost disadvantage for local businesses.”

“Amazon is a very large, efficient retailer that is able to do things cost effectively. But it is going to appear even cheaper because they’re not paying GST on their imports under $400 into New Zealand. Domestic firms see that as a double disadvantage to their business.”

57% of respondents say this GST issue is leading to “negligible” losses, while 21% estimate they are losing 33% or more of sales.

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.”

But the “Amazon effect” isn’t all bad news.

Elms explains, “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.”

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.”

According to Elms, 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.”

To conclude, Elms says retailers are grappling with “potential headaches around immigration caps”, but, in the longer term, the industry must invest in better training and development to build the pool of homegrown talent.

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