20/12/2017 - 09:21

Getting to grips with Amazon in the retail jungle

20/12/2017 - 09:21

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It may still be early days, but Amazon’s arrival in Australia has yet to damage the numbers for some high-profile traditional retailers.

Rather than competing with the services available online, Flight Centre is working with the internet to grow business. Photo: Attila Csaszar

Amazon came, and if you believe one of Australia’s most successful retailers, Amazon went.

That’s stretching the point, but not by much, if you consider what Gerry Harvey, the man behind Harvey Norman, had to say about Amazon, and what investors did to the share price of his company after the giant US online retailer opened its portal to Australian customers this month.

Rather than Harvey Norman shares falling sharply after Amazon started trading after 12 months of false starts, the deeply entrenched Australian retailer enjoyed a modest boost to its share price.

Harvey Norman has some way to go before it reclaims its 2016 peak share price of $5.30, but at a recent price of $4.20 the stock is up 26 cents on where it was before Amazon started trading (and back to where it was in May when Amazon speculation was heating up).

Viewed another way, Harvey Norman shares are up 56 cents (15.7 per cent) on their mid-year low of $3.55, which is definitely not what most retail-sector watchers and investment bank analysts had expected.

Mr Harvey, naturally, is delighted with what he’s seen so far of Amazon’s offering to Australian shoppers. But whether he is being prematurely optimistic will be judged over the next 12 months, and it’s highly unlikely that Amazon will be the lame duck he hopes it will be.

What’s happening in the retail world of Harvey Norman and Amazon is an interesting example of how the digital revolution, and online shopping, is not the death sentence that some people feared.

Other examples of businesses fearful of severe damage from the online revolution include: the remarkably successful Flight Centre; the paper and forest products industry; and a book-retailing business that I encountered more than 15 years ago, and which is still going strong today from its bricks-and-mortar shop in the New York holiday destination of Fire Island.

Surviving in an online world is not easy, but each of the examples mentioned adds to the experience, so far, of Mr Harvey, which is that personal service is as important, or more so, than price.

On Fire Island, the bookshop owner was planning to sell her business when online book retailing started to take off and electronic books, such as those available on Amazon’s Kindle service, were just hitting the market.

What happened to the Fire Island bookshop was a surprising increase in business, thanks to a comeback in the number of people wanting to read books. Holidaymakers were happy to spend time browsing the shelves rather than looking at a computer screen, with the added bonus of being able to speak with the retailer to get an opinion on what to read.

Flight Centre is a much bigger example of a business surviving (and prospering) in an online world, as travellers turn to its shop-based experts for guidance before making travel arrangements, especially any that are slightly more complicated that a simple Perth-Sydney return flight.

What Flight Centre’s founder and managing director Graham Turner has done is reinvent his business to make it competitive in a digital world, working with the internet rather than trying to fight it.

The net result is that Flight Centre, a business some people thought could not possibly survive an era of at-home internet travel bookings, is today a business valued on the stock market at $4.5 billion, slightly bigger thanPerth-based Seven Group, which controls the Seven West Media group and the WesTrac industrial equipment business.

The numbers behind Flight Centre tell a story of a business doing far more than surviving, with sales in the current financial year tipped to hit $2.7 billion and pre-tax profits expected to be around $362 million.

But the best example of surviving in a digital world by reinventing its business model is the world’s paper industry, which was supposed to have been a victim of the paperless office (remember that prediction?), and a victim of the switch from printed newspapers and magazines to digital products.

Newsprint production has certainly dropped, but in its place is a series of paper products that have more than made up for the decline of newspapers, including tissues, toilet paper, and the biggest of all, transport packaging – those cardboard boxes that accumulate around this time of the year and fill recycling bins, with most delivered thanks to an internet sales transaction.

Management consultancy McKinsey & Company expects there to be a continuation of the pattern that has developed over the past decade, with printing and writing papers continuing to decline while packaging and paper for personal use more than fills the gap.

Mr Harvey’s experience, so far, with Amazon is a useful pointer to how established businesses can survive a digital attack, while Flight Centre and the paper industry are examples of reinventing the offering to consumers.

U yo-yo

WESTERN Australia-based uranium mining hopefuls such as Vimy Resources, Bannerman Resources and Toro Energy got a pleasant surprise recently when the government of Kazakhstan said it would reduce the production of nuclear fuel, following a similar move made by Canada uranium leader, Cameco.

All three of the local U-stocks added 1 cent, or more, to their share prices as investors placed bets on uranium following zinc, nickel and oil as a potential beneficiary of big producers cutting output to help absorb a large stockpile of surplus material.

But, as ever with uranium, it was no sooner that a step forward was taken than a step back appeared in the form of France, the world’s nuclear-power leader (70 per cent of its electricity supply comes  from nuclear power stations), which revealed a shift away from uranium towards wind and solar.

In what would be a momentous step, the French government has announced a tentative plan by its national energy business, EDF, to spin-off nuclear power to create a business more focused on renewable energy.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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