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by David Rome
December 7, 2017
Photography by Caley Fretz
TECH NEWS BROUGHT TO YOU BY BIKEEXCHANGE
For those in Australia, the biggest news hitting the country is that Amazon has just launched. Where Australians have long been regular customers of Amazon, Tuesday was the first day of Amazon offering localised products, warehousing, and fulfilment.
However, the launch has been a bit of a fizzer, with many media outlets reporting disappointing prices, limited ranges and generally just a lackluster start. And while that may be true, it’s more likely Amazon is just dipping its toe in the Australian shores, testing its system and processes before ramping up in a way that only Amazon can.
For the Australian cycling industry, Amazon’s soft entry probably has bike stores around the country breathing a sigh of relief. However, given sporting goods falls under Amazon Australia’s opening 23 categories, tech writer Dave Rome believes the industry should be nervous of what’s to come, but perhaps, not any more than the present.
The Australian cycling industry has long battled international retailers, and there is no retailer larger than the Wiggle-CRC Group. Acquired by an investment group in 2011, Wiggle has been on a path of domination for some time, merging with ChainReactionCycles and just last month, acquiring rival German site Bike24. Today, Wiggle claim to be the market leading online seller in the Australian market.
Online sales are often given the blame for many independent cycling retailers going out of business or struggling to make ends meet, and to date, Wiggle is often the most convenient business to condemn for Australian-based bicycle businesses. However, no matter how big Wiggle is, its no match for the gigantic bully that is Amazon.
Where Wiggle is part of a larger business group, and one with stakeholders that expect to see profits, Amazon is a unique beast. Since its inception, it has re-invested whatever profits it earns into company expansion, all while being predatory in its pricing, too.
Whichever new market Amazon enters, it typically runs at a loss, or without margin just knowing that it will succeed in the long-term. Along the way, plenty of big brands have suffered from brand erosion that only Amazon’s lowest-price-first algorithm can achieve, and yet, there’s no slowing down this company which sits 6th of Forbes’s most valuable brands list.
Where some might assume that Wiggle-CRC is trembling with fear in its discounted Saucony shoes, Adam Johnson, General Manager International at Wiggle-CRC is quick to squash such beliefs. “Australians have been buying from Amazon UK and Amazon US for a very long time, with talk of $1Bn in sales before Amazon Australia even opened its doors, so it isn’t as if we’ve been in an Amazon-free world here.”
Amazon Australia’s cycling product landing page is currently aimed at the family market. However, it’s actual product range spreads far wider.
“We don’t expect Amazon Australia or its Marketplace sellers to be heavily skewed to our categories, particularly at the higher end, but realistically a “new” sophisticated entrant like Amazon into a market is initially going to take some share if the market isn’t expanding or if the market is expanding they will take some volume that would have gone to incumbents. So there has to be some effect on all of us in the market,“ cites Johnson, before reaffirming Wiggle’s position on the matter.
“Both Wiggle and CRC have grown and thrived in an Amazon world. Amazon UK and in Europe is long-established and has always been part of our competitor set during our journeys to being #1 in our markets. Our Chairman was formally the CEO of Amazon UK, so we understand and know them well and respect what they do.”
Amazon has been dominating the US retail environment for a number of years now, and its impact on the bike industry has certainly been felt. It’s a topic that James Huang has discussed before, and Amazon, along with the greater commoditisation of the industry, remains a large threat.
As James’ discussion covers, bicycle retailer numbers in the US have gone from approximately 6,000 to approximately 4,000 retailers in only a few years. And while the figure in Australia isn’t as dire, Peter Burke, General Manager of Bicycling Industries Australia, believes the Australian cycling retail environment (categorised by independent shops that sell bicycles) has shrunk approximately 10% in the past five years, with plenty of turbulence seeing new shops appear almost as quickly as old ones disappear.
Elorie Slater, a former marketing consultant and now the owner of Sports Garage, a popular bike store in Boulder, Colorado, is often vocal on the sustainability of retail. Slater is a strong proponent of specialisation and expertise, stating that experience and people are two things the likes of Amazon just cannot compete on. As an example of this, in one of the strongest road markets within the USA, Slater turned her store into an off-road bike specialist, leaving behind all road bike sales.
“Amazon, in essence, opened the eyes of the American consumer to how much of their household consumption can be transacted online. Together with Ebay – a platform the bike industry was already familiar with – Amazon gave us permission to view the internet as a bargain-hunters paradise,” tells Slater of the most significant impact Amazon has had on the industry.
Ben Gilbert, a retail analyst for UBS believes the rate of growth for online spending in Australia is set to double with Amazon’s arrival. Such forecasts come off the back of UBS’ recent survey of more than 1,000 Australian consumers, with 42% of respondents stating they would shop online more after Amazon’s launch.
Lester Binegar, manager at University Bicycles, another popular Boulder-based store with a difference, doesn’t pull any punches on the matter. “The change in consumer buying habits will continue the shift from visiting a retailer to ordering online. A retailer better damn well have a competitive reason for shoppers to come see them or they will die and die quickly. This is happening right now in the States.”
Binegar believes Amazon is responsible for a 10-15% decline in his store’s clothing and accessory sales. And just like Slater, Binegar’s store product range has shifted in recent years to support quality and popular products that aren’t readily available on Amazon or other discount online retailers.
Where bike shop numbers are down in Australia, according to Burke, specialty stores or smaller stores are the ones opening, including service-only models. However, while Burke believes that the internet is to blame for shrinking margins and slower sales in fast moving consumer goods, he maintains that the bike industry has been hit like any Australian retail industry based on discretionary purchase – and it’s as much an economic issue.
It would be fair to argue that Amazon, at least at first, will only take business from existing online retailers, and perhaps more mass-consumer department stores. However, just as it did in the USA, Amazon is expected to change consumer purchasing habits.
So what makes Amazon so unique? Well, it’s a multi-channel business. These days, Amazon operates as both a third-party marketplace and an e-commerce giant. For the marketplace, it serves as a selling channel for retailers that hold and ship their own stock, and as a e-commerce platform, it warehouses, sells and ships goods.
Looking to Amazon Australia, there are currently over 10,000 items related to cycling. Of these, 9,382 appear to be fulfilled by Pushys, arguably the largest Australian-owned IBD and online retailer, and now a third-party on Amazon. Prices are ho-hum (often at or near full retail, and certainly more expensive than what’s on Pushy’s own website), and shipping rates typically sit at about AU$12 – hardly a threat to existing e-commerce options.
The same product, sold and shipped by the same seller. Right now Amazon’s Australian offering isn’t strong, but give it time.
However, it’s the next step in Amazon’s plan that’s most threatening to both existing online and brick-and-mortar retailers. And as suggested before, the Amazon Australia we see now is merely an operations soft launch.
Wiggle’s merger with Chain Reaction Cycles was in many ways a move to see sustainable profits by eliminating the direct competition. And within months of the two companies combining, unsurprisingly, prices have crept up. And while Amazon may not directly compete on either range or price (yet), it’s certainly going to win on convenience through fast delivery.
No matter how big Wiggle-CRC is, it’s still a specialist e-commerce retailer. And a specialist will never be able to compete on scale metrics with a business that sells everything from eggs to climbing ropes to hilarious dog outfits. For Amazon, price alone isn’t a key to success – offering the largest range including free, fast and reliable delivery is. And it’s on delivery that Amazon will likely win its share of existing and new online sales.
According to a new study from Consumer Intelligence Research Partners, it’s suggested that Amazon has 80 million Prime members in the US alone. If that’s correct, nearly 25% of the population are paying members of Amazon, with an average annual spend thought to be near double that of non-paying members.
In the US, Amazon offers its Prime membership model, costing US$99 per annum and rewarding members with free two-day delivery on millions of eligible products. It’s been widely reported that Amazon’s Prime service will launch in Australia mid 2018. And no doubt, this will create a whole new dedicated and loyal customer base for the online giant.
For the independent bike store, there’s little question that times are tough. And they’ll probably get tougher still – especially when so much of the population are understandably pursuing the lowest price and/or most convenient option.
From Slater’s point of view, the advice to independent bike dealers (IBD) is, “think about what you do, as an IBD, that cannot be replaced by the internet.” As stated earlier in this article, that’s people and experience.
“The most important strategic move we made was to commit – in a big way – to being a full suspension mountain bike and gravel grinder demo center. We have a fleet of over 40 premium builds, and invite consumers into a completely different kind of buying experience that is value driven, not discount driven. We believe in expertise – by focusing our business, our technicians are working on the same kind of high-end technology over and over and over again,” reveals Slater.
“Be valuable in your community. Amazon is not likely to show up to build trails, or give scholarships for high school Enduro racers, or volunteer time to rebuild bikes at a local nonprofit. We do all those things… but we couldn’t without a pot of net income to draw on. Period.”
And while not all customers will agree, Slater points out, “The most effective tactic – and the hardest to do – is to ask for the full price sale. You can’t do this if you’re not an expert and you aren’t working to prove your value.”
For the retailers thinking of joining Amazon marketplace, Johnson offers some perfectly valid and proven, if not selfishly intentioned advice. “I think it is an interesting situation for retailers of others’ brands listing those brands’ products on Amazon Marketplace in terms of the message that sends to those brands. What value is the retailer adding that either the brand couldn’t get itself by listing on Amazon Marketplace or by Amazon becoming the seller?”
“The brand could list itself on Amazon Marketplace much cheaper than the margin it gives the retailer. And because Amazon has access to all the sales data on its Marketplace it cherry picks the top selling brands and products the Marketplace retailers are selling, and starts selling those items itself, cutting out the retailer and making more margin than it gets from the retailer as a Marketplace seller, and it uses that extra margin to undercut the price of the initial Marketplace retailer. And that doesn’t just happen for well-known brands, Amazon will go to source on OEMed (Original Equipment Manufacturer) products too,” Johnson added.
Amazon’s entry isn’t all bad, and certainly, many consumers will praise the benefits of stronger market competition.
Likewise, some local retailers, such as Pushys, may find themselves in a prosperous position and gain a helping hand against the likes of Wiggle-CRC. And as Amazon grows, smaller retailers who are willing to tread the fine line between profit and loss may also join the party and list product with Amazon.
In Wiggle’s case, Johnson thinks Amazon’s entry may offer some benefit, at least for them. “We think their initial effect will have more impact on the lower, more general end of the market, but over time their range will grow as it has done in the UK and in Europe. Overall we see the establishment of Amazon Australia as positive for our sales since it will lift the acceptance of online shopping as a good idea amongst Australians.”
“We also expect Amazon to improve the efficiency of Australian logistics both through driving customer expectations on delivery, but also by putting more volume into the network that will allow investment in capacity that can improve speed and consistency of delivery and drive down costs,” added Johnson.
As it stands, the cycling industry already has a strong online bias, with a thriving e-commerce market. And right now, Wiggle, along with a number of smaller online-specialists, provide superior options for online-savvy cyclists. Product ranges and pricing both outstrip Amazon Australia’s.
Once Amazon is up to speed with its best-in-class delivery, its most noticeable impact will be in two areas. Firstly, convenience – one element of the consumer journey many brick and mortars still rely on. And secondly, mass appeal, where recreational cyclists and bike owners will be able to add an inner tube, a cheap pair of cycling shorts and some energy gels to their order of nappies, dog food, and the latest best-selling book, and have it all within days and without having to go to a shopping mall.
When that time comes, physical bike stores and smaller specialist online stores will feel the strangle. Shops lacking a strong community, good people, and great service, if they haven’t already, will certainly be the first to go.
Yes, Amazon will have an impact on the Australian bicycle industry, but in my opinion, much of the damage to traditional retail has already been done.