The scale of the impact of Amazon arriving in Australia and its psychological impact on major retailers both in New Zealand and Australia is like nothing I have ever seen before. Australian retailers are literally knocking at the knees in grim preparation for the Amazon arrival. I really wonder what this does to the shareholders confidence of a major company like Wesfarmers which owns Bunnings Warehouse, Kmart and Coles, when its managing directors is reported extorting grim tidings for retailers.
I commented a few weeks ago in respect of similar grim forecasts from The Warehouse camp in New Zealand. There is no doubt that the Amazon format will make retailers stand up and take notice, but I am not convinced that the bugle for retreat should be sounded just yet. Fundamentally, Amazon will enrich the opportunities for consumers. However, for some to predict that the large format store concept is at an end is media trivia or, in Donald Trump’s words, "fake news".
In the 1990s when the large format stores emerged, many thought that the small speciality store concept would die. That didn't happen.
The expansion of major stores like The Warehouse, Briscoes, Harvey Norman, Kmart and Farmers did not see the reduction in speciality store concepts, in fact quite the opposite. What we saw in the late 1990s and into the 2000s was a significant emergence of high quality speciality stores. Examples in New Zealand today are H&M, Zara, and Topshop to name a few. Retailers still need bricks and mortar stores.
On the reverse side of the coin, just over the past weekend, the owners of Farro Fresh, a gourmet specialist food retailer with a number of stores in Auckland, announced that its stores were about to top over $100 million in sales. Farro has been a client of RCG since its inception, and its growth is due to hard work by its owners. It is a good example of a couple of individuals opening gourmet stores in the face of severe local dominance by the two major supermarket chains.
The Farro emergence and success demonstrated that if the offering to the consumer is well targeted then success will follow.
Amazon is another wakeup call for retailers operating in Australia and New Zealand. It is however, not the end of retail trading as we know it. In days past, when horses were the common means of transport, merchants built hitching rails outside their stores to accommodate customers horses, for convenience. Over time, horses were replaced with car parks, again for convenience. I suspect that the arrival of Amazon is a bit like that analogy. Amazon may well end up delivering with drones, but there will be nothing to match the need for personal communication, and interaction.
Paul Keane is a registered property professional and has vast experience in New Zealand’s commercial property industries. He provides retail and property consultancy including development management to many New Zealand property owners, developers and city councils. This post originally appeared on RCG's blog.