The latest insolvency data from the Australian Securities and Investments Commission (ASIC) shows that 522 businesses in the retail sector have gone into administration so far in 2023-24, compared with just 197 during the same period in 2021-22:
The insolvencies have come amid stiff financial headwinds afflicting consumers, including soaring mortgage and rent payments and higher income tax payments.
As a result, consumer sentiment is at recessionary levels, and households are cutting back on their consumption.
Traditional brick-and-mortar retailers face stiff competition from online retailers like Amazon and eBay, which offer greater convenience and often lower prices.
Amazon entered the Australian market in December 2017 and has grown its presence. It offers competitive prices and unmatched convenience, with products often delivered to your door for free within 48 hours if you have an Amazon Prime account.
In what should be seen as the death knell for Australian retail, Amazon has announced that it will expand its operations and distribution base in Australia.
“Amazon is spending $490 million to build two warehouses in Western Sydney to expand its range and speed up its delivery for customers”.
“The purpose-built fulfilment centres will be completed in early 2026 and span a massive 80,000 square metre area – about 4½ times the size of the Sydney Opera House”.
“Amazon said the capabilities would specifically improve its household goods ranges, including garden equipment, furniture and flat screen TVs, with local operations manager Sandra McNeil touting increased demand for online shopping and faster delivery times”.
“That’s a shot across the bow to incumbent retailers in those categories such as Harvey Norman and JB Hi-Fi, which are increasingly competing with the global e-commerce giant”.
Retail Doctor Group chief executive Brian Walker warned that Amazon would become Australia’s most prominent “technology forward” value retailer within three to five years.
“Amazon is a category killer, there’s no doubt”, Walker said.
“It’s a very tight, closed ecosystem and the big driver is the Prime [membership program]”.
Amazon’s Prime program provides customers with speedier, free delivery after paying a cheap annual subscription, which incentivises them to make purchases with Amazon.
It also gives customers access to Prime subscription television, a cut-down version of Netflix.
From Amazon’s perspective, the Prime subscription provides a consistent revenue stream and ensures that customers do not look elsewhere, making investing significantly in fulfilment centres easier.
Amazon already dominates American retail (alongside Walmart) and will soon dominate Australia. The writing is on the wall.
Australian consumers will choose value and convenience over everything else. And Amazon has both ingredients on lock.
